Court Opinion

ID: 2986101
Source: CourtListenerOpinion
Date Created: 2015-09-23 00:25:31.224651+00
Date Added: 2024-06-11T18:01:06.954754
License: Public Domain

Affirmed and Opinion filed August 29, 2013.

                                     In The

                    Fourteenth Court of Appeals

                             NO. 14-12-00557-CV

    GRACE INTEREST, LLC, CYPRESSWOOD LAND PARTNERS I,
    STEPHEN A. MORROW AND SANDRA J. MORROW, Appellants

                                       V.

                      WALLIS STATE BANK, Appellee

                   On Appeal from the 129th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2011-20231

                                OPINION

      Appellee Wallis State Bank sued appellants Grace Interest, LLC (Grace),
Cypresswood Land Partners I (Cypresswood), Stephen A. Morrow (Mr. Morrow),
and Sandra J. Morrow (Mrs. Morrow), seeking to collect the deficiency remaining
after the Bank foreclosed on real property securing the repayment of a promissory
note. The Bank moved for summary judgment, which the trial court granted.
       In this appeal, appellants contend in a single issue that the trial court erred in
granting the Bank’s motion for summary judgment. They make several arguments
in support of this issue, including: (1) the case should have been dismissed based
on the exclusive jurisdiction of the bankruptcy court; (2) the trial court did not
honor appellants’ right to arbitration; (3) the Bank’s motion was based on
inadmissible evidence; and (4) the trial court incorrectly determined that appellants
had waived the Texas Anti-Deficiency Statute.1 We conclude that this suit is
permitted under the bankruptcy plan and thus does not affect the bankruptcy
court’s exclusive jurisdiction, that appellants did not meet their burden in seeking
arbitration, that the Bank’s summary judgment evidence was admissible or its
consideration was harmless, and that appellants waived their rights, remedies,
claims, and defenses under the Anti-Deficiency Statute.                 We also conclude that
other arguments made by appellants have not been preserved for our review.
Accordingly, we affirm the trial court’s judgment.

                                         BACKGROUND
       Cypresswood is a Texas joint venture formed to hold and develop parcels of
land along State Highway 249. In 2005, Cypresswood borrowed $2,508,958 from
the Bank. We consider the terms of this loan transaction and subsequent
transactions in some detail because those terms show which appellants are bound
by waivers of the Anti-Deficiency Statute rights, remedies, claims, and defenses.

       A.      The transactions at issue

       As part of the 2005 loan, Cypresswood executed a Balloon Real Estate Lien
       1
          Sections 51.003 through 51.005 of the Texas Property Code comprise what is
commonly known as the Texas Anti-Deficiency Statute. See Tex. Prop. Code Ann. §§ 51.003–
.005 (West 2007). Section 51.003 provides that if the fair market value of a foreclosed real
property is greater than the price paid for the property at the foreclosure sale, the person against
whom a deficiency is sought is entitled to an offset against the deficiency equal to the amount by
which the fair market value exceeds the foreclosure sale price. Tex. Prop. Code Ann. § 51.003.

                                                 2
Note payable on demand to the Bank (the Note). The security for payment of the
Note was a 6.21-acre tract of land located in Harris County (the Property) and a
$200,000 certificate of deposit. Cypresswood executed a “Deed of Trust and
Security Agreement” (Deed of Trust) in favor of the Bank, which Cypresswood
granted the Bank a first and senior lien and security interest in the Property.
Paragraph 27 of the Deed of Trust provides:

      WAIVER OF DEFICIENCY STATUTE PROTECTIONS/FAIR
      MARKET VALUE FOR CALCULATING DEFICIENCIES.
      Notwithstanding the provisions of Sections 51.003, 51.004, and
      51.005 of the Texas Property Code . . . , [Cypresswood] agree[s] that
      [the Bank] shall be entitled to seek a deficiency judgment from
      [Cypresswood] and any other party obligated on the Note or any
      guarantor of the Note equal to the difference between the amount
      owing on the Note and the amount for which the Premises was sold
      pursuant to a judicial or nonjudicial foreclosure sale. [Cypresswood]
      expressly recognize[s] that this section constitutes a waiver of the
      above-cited provisions of the Texas Property Code which would
      otherwise permit [Cypresswood] and other persons against whom
      recovery of deficiencies is sought or guarantors independently (even
      absent the initiation of deficiency proceedings against them) to
      present competent evidence of the fair market value of the Premises as
      of the date of foreclosure and offset the fair market value of the
      Premises as of the date of foreclosure against any deficiency the
      amount by which the foreclosure sale price is determined to be less
      than such fair market value. [Cypresswood] further recognize[s] and
      agree[s] that this waiver creates an irrebuttable presumption that the
      foreclosure sale price is equal to the fair market value of the Premises
      for purposes of calculating deficiencies owed by [Cypresswood],
      other borrowers on the Note, guarantors, and others against whom
      recovery of a deficiency is sought.
      To induce the Bank to make the loan, Redwood Properties, LLC, Robert
Zamorano, and Mr. Morrow executed a guaranty agreement (Guaranty 1), in which
they jointly and severally guaranteed the full payment of all indebtedness
Cypresswood owed the Bank—including, but not limited to, all amounts owed to

                                         3
the Bank under the Note.2 Guaranty 1 also contains a waiver by the guarantors of
the provisions of the Texas Anti-Deficiency Statute.            The waiver language
provides that the Bank may seek a deficiency judgment from the guarantors, and
its terms are substantively identical to those quoted above (replacing the word
Cypresswood with guarantor).         Guaranty 1 expressly states that all of the
guarantors remain liable for the full amount of the Note until the Note is paid in
full, and it also provides that it will “automatically extend to cover all renewals,
rearrangements and/or extensions of the above mentioned indebtedness and any
part thereof, regardless of who may be the holder thereof and regardless of the
form, terms, provisions and security (or lack of security) thereof.”           Finally,
Guaranty 1 contains an arbitration clause stating that “all disputes . . . shall be
resolved by mandatory binding arbitration upon the request of any party.”

      In 2006, Cypresswood executed a Modification Agreement modifying and
extending the Note. The Modification Agreement contains an arbitration clause.
Simultaneous with Cypresswood’s execution of the Modification Agreement,
Redwood Properties, Zamorano, and Mr. Morrow executed a second guaranty
agreement (Guaranty 2) reaffirming their absolute and unconditional guarantee to
pay in full all indebtedness Cypresswood owed to the Bank—including, but not
limited to, all amounts due and owing the Bank under the Note. Guaranty 2
contains a waiver of the rights, remedies, claims, and defenses under the Texas
Anti-Deficiency Statute identical to the waiver in Guaranty 1.

      In April 2007, Mr. Morrow filed an involuntary Chapter 11 bankruptcy
petition against Cypresswood.      In January 2009, the federal bankruptcy court
confirmed Cypresswood’s First Amended Liquidating Plan of Reorganization, as

      2
          Redwood Properties, LLC and Robert Zamorano were both defendants below but are
not parties to this appeal.

                                           4
modified by the Notice of Non-Material Changes to Amended Liquidating Plan
(the Plan). The Plan provides:

      Class 2: Secured Claim of [the Bank]. The allowed Secured Claim of
      [the Bank] will be satisfied through the sale, transfer, and conveyance
      of [the Bank’s] Collateral to [Grace]. Pursuant to Sections 1129 and
      363 of the [Bankruptcy] Code, the Sale shall be free and clear of all
      liens, claims and encumbrances, except for the liens, claims, and
      interests of [the Bank], which liens shall remain in full force and
      effect. [Grace] shall assume all obligations owing to [the Bank], and
      contained in the [Bank] Loan Documents, including the obligation to
      repay the Allowed Secured Claim of [the Bank], in accordance with
      the terms and provisions of the applicable notes and deeds of trust,
      together with all obligations hereunder . . . .
      (i)    . . . [Grace] shall execute and deliver an Assumption Agreement
      in a form and content acceptable to [the Bank]. . . . Nothing in the
      Plan shall constitute a reinstatement of the [Bank] Loan, which has,
      and remains, matured and accelerated . . . .

      ...
      (iii) [Grace] shall pay $23,108.00 per month to [the Bank] . . . until
      November 1, 2009, at which time the full balance . . . shall be
      immediately due and payable. As long as [Grace] makes the required
      payments and complies with each and every term of this Plan and the
      Deeds of Trust, [the Bank] shall forbear from causing a foreclosure
      sale to be conducted against the [Property] until on or after November
      1, 2009, after which time [the Bank] may proceed with all of its rights
      and remedies, including foreclosure against the [Property]. . . .

      The Plan also provides that Cypresswood, as reorganized by the Plan, could
“sue and be sued, including filing and defending contested matters and adversary
proceedings in the [bankruptcy court] and actions or other proceedings in any other
court.” The Plan allows a reorganized Cypresswood to enter into binding contracts
that it reasonably believes to be in its best interest. In its order confirming the
Plan, the bankruptcy court specifically held that Cypresswood did not obtain a

                                        5
discharge of any debt under the Plan.

      The Plan required Mr. and Mrs. Morrow to execute new guaranty
agreements or reaffirm their existing guaranty of the Bank loan and confirm that
Grace’s assumption of that loan would not impact their obligations under the
guaranties. In addition, the Plan provides that the Bank expressly reserves its
rights against both Mr. and Mrs. Morrow.

      Pursuant to the Plan, in February 2009, the Note was assumed by Grace and
modified in a Loan Assumption and Modification Agreement (Assumption
Agreement) executed by Cypresswood, Grace, the Bank, and both Mr. and Mrs.
Morrow. In the Assumption Agreement, Grace agreed to the following:

      1.     Assumption of Obligations by [Grace]. [Grace] agrees to
      assume and does hereby assume and covenant and agree to timely pay
      and perform all of the payment and performance obligations of
      [Cypresswood] set forth in the Loan Documents in accordance with
      their respective terms and conditions, as modified by the terms of this
      Agreement. [Grace] further agrees to abide by and be bound by all of
      the terms of the Loan Documents, and all of the representations,
      warranties, covenants, agreements and acknowledgments of
      [Cypresswood] (to the extent not personal to [Cypresswood])
      contained in the Loan Documents all as though each of the Loan
      Documents had been made, executed and delivered by [Grace] as of
      the date of this Agreement (giving credit, however, for all payments
      made to date under the Loan).
The Assumption Agreement defines the term “Loan Documents” as including the
Deed of Trust executed by Cypresswood as well as Guaranty 1 and Guaranty 2.

      Further, paragraph 4(c) of the Assumption Agreement provides:

      Loan Documents. That, the Loan Documents, as they have heretofore
      existed, constitute valid and legally binding obligations of
      [Cypresswood] and [Mr. Morrow]; that the Loan Documents, as
      assumed by [Grace] and [the Morrows] hereunder, constitute
      obligations of [Grace] and [the Morrows] and, from and after the date
                                        6
      of this Agreement, are enforceable against [Grace] and [the Morrows]
      (as applicable) and against the Property in accordance with their
      terms; and that the Borrower Parties [defined as Cypresswood, Grace,
      and both Mr. and Mrs. Morrow] have no defenses, setoffs, objections,
      claims, counterclaims, or causes of action of any kind or nature
      whatsoever with respect to the Loan or the Loan Documents, or the
      indebtedness evidenced and secured thereby.
The Assumption Agreement further provides:

      7.     No Impairment of Liens. Nothing set forth herein shall affect
      the priority or extent of the security title or lien of any of the Loan
      Documents, nor, except as expressly set forth herein, release or
      change the liability of any party who may now be or after the date of
      this Agreement, become liable, primarily or secondarily, under the
      Loan Documents. Except as expressly modified hereby, the Loan and
      the Loan Documents shall remain in full force and effect, and this
      Agreement shall have no effect on the priority or validity of the
      security title or liens set forth in the deeds of trust securing the Loan
      or the other Loan Documents.
      ...

      11. No Waiver of Remedies. Except as expressly set forth herein,
      nothing contained in this Agreement shall prejudice, act as, or be
      deemed to be a waiver of any right or remedy available to [the Bank]
      by reason of the occurrence or existence of any fact, circumstance or
      event constituting a default or an Event of Default under the Loan or
      the Loan Documents.

The Assumption Agreement also contains a release of all claims against the Bank
and recites that it is entered into based on advice of counsel, and that there are no
oral agreements that modify or contradict the terms of the Assumption Agreement.

      To induce the Bank to allow Grace to assume the terms of the Note, Mr. and
Mrs. Morrow executed a Continuing Guaranty (Guaranty 3). In Guaranty 3, each
of the Morrows, jointly and severally, guarantee the prompt and full payment of all
indebtedness owed to the Bank by Grace, including, but not limited to, all amounts

                                         7
due and owing the Bank under the Note, as modified. Like the earlier guaranties,
Guaranty 3 contains a specific waiver of the provisions of the Anti-Deficiency
Statute:

      Further, Guarantor expressly waives all rights, remedies, claims and
      defenses based upon or related to Sections 51.003, 51.004 and 51.005
      of the Texas Property Code, to the extent the same pertain or may
      pertain to any enforcement of this Guaranty.

Guaranty 3 also provides that “[n]othing herein shall be construed to cancel,
amend, discharge or limit any other guaranty or similar obligation executed by
Guarantor in favor of Lender.”

      In December 2009, the Bank, Grace, Cypresswood, and the Morrows
executed a Reinstatement, Renewal, Extension and Modification Agreement,
(Renewal Agreement). The Renewal Agreement provides for monthly payments
of $23,108 beginning in December 2009, with a final balloon payment due in
November 2010. The Renewal Agreement also provides that in the event of a
default by Grace, the holder of the Note may elect to exercise any or all rights,
powers, and remedies allowed by “the Deed of Trust and all writings related to the
Note,” or “by law, including the right to accelerate the maturity of the Note.”

      Paragraph 8 of the Renewal Agreement states:

      The liens and security interests are ratified and confirmed as
      continuing to secure the payment of the Note, including this [Renewal
      Agreement]. Nothing herein shall in any manner diminish, impair or
      extinguish the Note or the liens and security interests securing it. The
      liens and security interests are not waived.

In addition, Paragraph 12 of the Renewal Agreement provides:

      Guarantors. STEPHEN A. MORROW and SANDRA J. MORROW
      remain as guarantors under their Guaranty Agreements and reaffirm
      their absolute and unconditional guarantee of the payment of the Note

                                          8
       as reinstated, modified, renewed and extended herein.

Finally, Paragraph 13 of the Renewal Agreement provides:

       Original Borrower: [Cypresswood], a Texas joint venture, the Original
       Borrower, by execution hereof acknowledges its continuing liability
       as Original Borrower with respect to the payment of the Note as
       reinstated, renewed, extended and modified herein.

       Grace and Cypresswood eventually defaulted on the required payments. The
Bank sent a notice of default and demand for payment to Grace, Cypresswood, and
the Morrows in September 2010. When the default was not cured, the Bank
accelerated the maturity of the Note and demanded full payment of all amounts
owed. When the Bank did not receive full payment, the Bank posted the Property
for foreclosure. The Bank purchased the Property at the ensuing foreclosure sale.
After crediting the amount paid for the Property at the foreclosure sale against the
amount owed to the Bank on the Note, a deficiency of $370,606.26 remained.3 In
addition, following the foreclosure sale purchase, the Bank paid the Property’s
outstanding 2010 real estate taxes of $61,200, which it added to the amount owed
as permitted by the Note and related Loan Documents.

       B.     The Bank’s lawsuit

       The Bank sent written demand for payment of the full outstanding balance to
Grace, Cypresswood, Redwood Properties, Zamorano, and both Morrows. When
no payment was received, the Bank sued those parties, seeking to recover all
amounts it alleged were owed under the Note and related Loan Documents. The
Bank eventually filed a traditional motion for final summary judgment, and it later
settled with Zamorano and Redwood Properties.

       3
          The deficiency consisted of $300,965.68 in principal, $65,018.68 in interest accrued
through June 7, 2011, and late charges of $4,621.60. In addition, interest continues to accrue at
the rate of $66.88 per day from June 8, 2011 until the outstanding balance is paid.

                                               9
      Appellants filed a single response to the Bank’s motion. In their response,
appellants gave many reasons why the trial court should deny the Bank’s motion:
(1) the trial court should abate the Bank’s lawsuit in favor of another lawsuit
involving a different lender, Regions Bank, and a different loan; (2) the trial court
should dismiss the Bank’s lawsuit for lack of subject matter jurisdiction because
the Cypresswood bankruptcy court retained exclusive jurisdiction; (3) appellants
conditionally requested arbitration to the extent the Bank was seeking to enforce its
rights under Guaranty 1, the Modification Agreement, or Guaranty 3; (4) the Bank
failed to state on what basis it was seeking a final summary judgment and therefore
failed to meet its burden of proof; (5) there had been no release and waiver of the
Texas Anti-Deficiency Statute and there were at least fact issues on the existence
of a deficiency following the foreclosure sale; and (6) the Bank presented no
evidence or law supporting its request for recovery of attorney’s fees. Appellants
also objected to the Guido Piggott affidavit, which the Bank had attached to its
motion for summary judgment as proof, because it allegedly contained hearsay and
improper legal conclusions and was not based on Piggott’s personal knowledge.

      In addition to their summary judgment response, appellants filed a pleading
entitled “Motion to Abate and Consolidate, Amended Original Answer, Verified
Denial, Amended Affirmative Defenses, Counterclaim, Motion for Determination
of Fair Market Value and Jury Demand.” In addition to containing affirmative
defenses and verified denials, this new pleading contained counterclaims for (1)
fraudulent inducement and (2) a determination of the Property’s fair market value
pursuant to the Texas Anti-Deficiency Statute. Appellants also asked the trial
court to abate the lawsuit and consolidate it with the earlier-filed lawsuit involving
the Regions Bank loan.

      The Bank then filed a reply to appellants’ summary judgment response, in

                                         10
which it argued its motion for final summary judgment was broad enough to
dispose of the counterclaims contained in the amended answer because they were a
restatement of the same arguments barred by the express provisions of the Loan
Documents, including the provisions waiving the Texas Anti-Deficiency Statute.
The Bank also objected to appellants’ summary judgment evidence, including the
affidavits of Mr. Morrow, Deborah Fritsche, and Lori Hood.

      During the summary judgment oral hearing, the trial court questioned
appellants’ trial counsel on the request for arbitration included in their summary
judgment response.     Appellants’ trial counsel confirmed that her request was
conditional. The trial court denied the request.

      Appellants never set their Motion to Abate and Consolidate this case with
the Regions Bank lawsuit for either an oral hearing or written submission and
never obtained a ruling from the trial court on those issues. Appellants also never
requested a ruling from the trial court on their objections to the evidence the Bank
submitted in support of its motion for final summary judgment.

      Following the hearings, the trial court signed a Final Summary Judgment in
favor of the Bank against appellants, jointly and severally, for all deficiency
amounts owed to the Bank. The trial court’s final summary judgment also stated
that “all relief not awarded in this Judgment is hereby denied.” In addition, the
trial court signed an order striking appellants’ summary judgment evidence,
including those parts of Mr. Morrow’s affidavit interpreting the written loan
documents as well as those portions of Lori Hood’s affidavit addressing the
reasonableness of the Bank’s requested attorney’s fees.

      Appellants timely filed their notice of appeal. In this appeal, appellants have
not challenged the trial court’s final summary judgment on their fraudulent
inducement cause of action, the award of attorney’s fees, or the trial court’s order
                                         11
striking their summary judgment evidence.

                                     ANALYSIS
      In a single issue on appeal, appellants contend the trial court erred when it
granted the Bank’s motion for summary judgment.            Appellants make many
separate arguments in support of that general contention. First, appellants assert
the trial court should have dismissed the Bank’s lawsuit due to a lack of subject
matter jurisdiction because the Cypresswood bankruptcy court retained exclusive
jurisdiction over all matters related to the bankruptcy. Second, appellants contend
the trial court erred when it failed to abate and consolidate the Bank’s lawsuit with
the earlier-filed Regions Bank litigation. Third, appellants argue the trial court
erred when it refused to compel the parties to arbitrate their dispute. Fourth,
appellants contend the trial court erred when it granted the Bank’s motion for
summary judgment because the Bank did not specify the grounds for summary
judgment in the motion. Fifth, appellants assert the Bank’s motion was based on
inadmissible evidence. Sixth, they argue the trial court incorrectly determined that
appellants had waived their rights, remedies, claims, and defenses under the Texas
Anti-Deficiency Statute. Then, based on the latter proposition, appellants contend
the trial court erred in granting the Bank’s motion because (1) there was inadequate
time for discovery on the issue of the market value of the Property, and (2) there
were genuine issues of material fact on the market value of the Property. Seventh,
in an argument raised for the first time on appeal, appellants contend that a waiver
of an offset based on the fair market value of the Property creates an unenforceable
penalty. We address each argument in turn.

I.    Standard of review

      We review the trial court’s grant of summary judgment de novo. Ferguson
v. Bldg. Materials Corp. of Am., 295 S.W.3d 642, 644 (Tex. 2009) (per curiam)

                                         12
(citing Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.2d 184,
192 (Tex. 2007)). We consider all of the evidence in the light most favorable to
the nonmovant, crediting evidence favorable to the nonmovant if a reasonable
factfinder could, and disregarding contrary evidence unless a reasonable factfinder
could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006).

      The movant for traditional summary judgment has the burden of showing
that there is no genuine issue of material fact and that it is entitled to judgment as a
matter of law. Tex. R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors,
Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).           In particular, a plaintiff
moving for summary judgment must conclusively prove all essential elements of
its claim. Cullins v. Foster, 171 S.W.3d 521, 530 (Tex. App.—Houston [14th
Dist.] 2005, pet. denied) (citing MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.
1986)).

II.   The trial court had subject matter jurisdiction over this suit.

      We turn first to appellants’ argument that the trial court should have
dismissed the Bank’s lawsuit because they contend the Cypresswood bankruptcy
court retained exclusive jurisdiction over this dispute. We disagree.

      By arguing the bankruptcy court had exclusive jurisdiction, appellants
challenge the trial court’s subject matter jurisdiction. Whether a trial court has
subject matter jurisdiction is a question of law, which we review de novo.
Edwards v. City of Tomball, 343 S.W.3d 213, 220 (Tex. App.—Houston [14th
Dist.] 2011, no pet.).

      It is undisputed that the bankruptcy court confirmed the Plan before this
lawsuit was filed by the Bank. Although the bankruptcy case remains open due to
malpractice claims, it is undisputed that those claims are not relevant to, or in any

                                          13
way connected with, the Bank’s lawsuit.

      Moreover, the Plan contemplates the very scenario involved in the Bank’s
lawsuit. The Plan provides that Cypresswood is authorized to enter into contracts
and to sue and be sued in any court or administrative agency. The evidence shows
that appellants used this authority to execute the Renewal Agreement, which
acknowledged, reaffirmed, and extended their obligations under the Note and Loan
Documents. The Plan also envisions the possibility that Grace’s efforts to sell or
develop the Property would not be successful and as a result, it provides that so
long as Grace makes the payments required by the Plan, the Bank will not
foreclose on the Property, but if Grace fails to make a required payment, the Bank
may proceed with all of its rights and remedies, including foreclosure.

      In In re Craig’s Stores, Inc., the Fifth Circuit stated that “after a debtor’s
reorganization plan had been confirmed, the debtor’s estate, and thus bankruptcy
jurisdiction, ceases to exist, other than for matters pertaining to the implementation
or execution of the plan.” 266 F.3d 388, 390 (5th Cir. 1991); see also In re U. S.
Brass Corp., 301 F.3d 296, 304 (5th Cir. 2002). Because the Plan contemplates
this suit as explained above, we conclude that no implementation or execution are
necessary for it to proceed. We also conclude that resolution of the Bank’s suit
does not turn on the application of bankruptcy law and will not interfere with the
bankruptcy court’s jurisdiction. See Dunn v. Menassen, 913 S.W.2d 621, 623–24
(Tex. App.—Corpus Christi 1995, writ denied) (“In order to preclude a State
court’s jurisdiction, the state claim must interfere with the jurisdiction of the
Bankruptcy Court.”).      Therefore, we hold the trial court properly denied
appellants’ jurisdictional challenge. See In re Craig’s Stores, 266 F.3d at 390
(“Once the bankruptcy court confirms a plan of reorganization, the debtor may go
about its business without further supervision or approval. The firm also is without

                                          14
the protection of the bankruptcy court. It may not come running to the bankruptcy
judge every time something unpleasant happens.”) (internal citation omitted); see
also Fitch v. Jones, 441 S.W.2d 187, 188 (Tex. 1969) (“The mere pendency of a
bankruptcy proceeding does not divest the state court of jurisdiction.”).

III.   Appellants did not preserve their abatement issue for appellate review.
       Appellants next complain that the trial court erred when it granted the
Bank’s motion for summary judgment rather than abating and consolidating the
Bank’s lawsuit with the earlier-filed Regions Bank litigation. In response, the
Bank asserts appellants failed to preserve this issue for appellate review because
they “never set the motion [to abate and consolidate] for written submission, never
commenced a hearing on the motion and never obtained a ruling from the trial
court.” We agree with the Bank.

       As a prerequisite to appellate review of a complaint, the record must show
that the complaint was made to the trial court by a timely request, objection, or
motion, and the trial court (1) ruled on the request, objection, or motion, either
expressly or implicitly, or (2) refused to rule, and the complaining party objected to
that refusal. Tex. R. App. P. 33.1(a); Gonerway v. Corr. Corp. of Am., No. 05-11-
01524-CV, 2013 WL 1277842, at *2 (Tex. App.—Dallas Feb. 14, 2013, no pet.).
Here, while appellants filed their motion for abatement and consolidation as part of
an amended pleading, the record does not reflect that appellants called the motion
to the trial court’s attention in any way. See Approximately $1,013.00 v. State, No.
14-10-01255-CV, 2011 WL 5998318, at *2 (Tex. App.—Houston [14th Dist.] Dec.
1, 2011, no pet.) (mem. op.) (“Showing that a motion was filed with the court clerk
does not constitute proof that the motion was brought to the trial court’s attention
or presented to the trial court with a request for a ruling.”). The record also does
not demonstrate that the trial court (1) ruled on the motion, or (2) refused to rule on

                                          15
the motion and appellants objected to that refusal to rule. Therefore, appellants
have failed to preserve this issue for appellate review. Wheeler v. Greene, 194
S.W.3d 1, 7 (Tex. App.—Tyler 2006, no pet.).

IV.   Appellants did not meet their burden in seeking arbitration.
      In a single paragraph of their opening brief, appellants next contend the trial
court erred when it granted the Bank’s motion for summary judgment because the
dispute should have been submitted to arbitration instead. Appellants do not cite
any legal authority in support of this contention, however. Nor do appellants
address the trial court’s stated reasons for denying arbitration. Instead, appellants
address these reasons and provide authority for the first time in their reply brief.

      We need not decide whether appellants waived their arbitration complaint by
explaining it for the first time in their reply brief, however, because we conclude
they have not shown that the trial court erred in refusing to abate the litigation and
order the parties to arbitration. A party attempting to compel arbitration must
establish (1) that a valid arbitration agreement exists, and (2) if so, that the claims
asserted fall within the scope of the agreement. In re AdvancePCS Health L.P.,
172 S.W.3d 603, 605 (Tex. 2005). If these two showings are made, the burden
shifts to the party opposing arbitration to present a valid defense to the agreement,
and absent evidence supporting such a defense, the trial court must compel
arbitration. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227B28 (Tex.
2003).
      Initially, appellants included a conditional request for arbitration in their
response to the Bank’s motion for summary judgment. Appellants did not attach
any arbitration agreements to that response. At the beginning of the oral hearing
on the Bank’s motion for summary judgment, the trial court asked appellants if the
request was serious.      In response, appellants’ counsel expressed uncertainty

                                          16
whether the Bank’s lawsuit involved only post-bankruptcy documents or
“everything in the bank’s file.” She then stated appellants would file a motion to
compel arbitration “if it’s everything in the bank’s file.”       During the entire
arbitration discussion, appellants did not bring any arbitration agreements to the
attention of the trial court and thus never addressed whether the Bank’s claims fell
within the scope of a valid arbitration agreement. When appellants indicated they
had nothing further to add regarding arbitration, the trial court orally denied the
request for arbitration because the appellants had not provided evidence of a valid
arbitration agreement. Appellants did not raise the subject of arbitration again with
the trial court.

       We hold appellants did not establish the existence of a valid arbitration
agreement covering the claims at issue in the litigation. Because appellants did not
meet their dual burden, we conclude the trial court did not err in refusing to compel
arbitration.

V.     Appellants did not preserve for appellate review their complaint that
       the Bank’s motion failed to specify the grounds for summary judgment.
       Appellants next complain that the trial court erred when it granted the
Bank’s motion for summary judgment because they contend the Bank did not
specify the grounds for summary judgment in the motion.             Once again, we
conclude appellants failed to preserve this issue for appellate review.

       When a non-movant believes a motion for summary judgment is unclear,
ambiguous, or lacks specificity, it must file special exceptions. Brocail v. Detroit
Tigers, Inc., 268 S.W.3d 90, 100 (Tex. App.—Houston [14th Dist.] 2008, pet.
denied). That party must then obtain a ruling on the special exceptions to preserve
the issue for appellate review. Tex. R. App. P. 33.1; Brocail, 268 S.W.3d at 100.
Because appellants did not specially except to the Bank’s motion for summary

                                          17
judgment, they did not preserve this argument for appellate review, and we do not
consider it. Gammill v. Fettner, 297 S.W.3d 792, 801 (Tex. App.—Houston [14th
Dist.] 2009, no pet.).

       In their reply brief, appellants contend the Bank’s appellate brief finally
provided the grounds for summary judgment that were missing from the motion
itself. Appellants then argue for the first time that the Bank did not establish all of
the elements of a deficiency suit. Specifically, appellants contend the Bank did not
prove a valid foreclosure sale because the summary judgment evidence did not
establish that the Bank provided proper notice of the sale as required by section
51.002(b)(1)–(2) of the Texas Property Code.4

       Appellants should have raised this issue in their opening brief. See Tex. R.
App. P. 38.1(f); Marsh v. Livingston, No. 14-09-00011-CV, 2010 WL 1609215, *4
(Tex. App.—Houston [14th Dist.] April 22, 2010, pet. denied) (mem. op.) (rule
against adding new issues in reply brief holds true even if new issue is in response
to matter in appellee’s brief). Even if they had, however, it would not change the
result because we conclude the summary judgment evidence establishes the Bank
provided proper notice of the foreclosure sale.

       Appellants admit that if the deed of trust permits it, the recitals in a trustee’s
deed constitute prima facie evidence that the notice requirements of the Property

       4
           Section 51.002(b) provides in pertinent part:
       . . . [N]otice of the sale, which must include a statement of the earliest time at
       which the sale will begin, must be given at least 21 days before the date of the
       sale by:
       (1) posting at the courthouse door of each county in which the property is located
       a written notice designating the county in which the property will be sold; [and]
       (2) filing in the office of the county clerk of each county in which the property is
       located a copy of the notice posted under Subsection (1). . . .
Tex. Prop. Code Ann. § 51.002(b) (West 2007).

                                                  18
Code were satisfied. See Deposit Ins. Bridge Bank, N.A., Dallas v. McQueen, 804
S.W.2d 264, 266 (Tex. App.—Houston [1st Dist.] 1991, no writ) (holding that
recitals in a deed are presumed to be correct unless rebutted by competent
evidence). Appellants contend the deed of trust in the present case does not
contain such a statement, but they are incorrect.

      Paragraph 13(f) of the deed of trust provides:

      The recitals and statements of fact . . . contained in any conveyance to
      the purchaser or purchasers at any such sale shall be prima facie
      evidence of the truth of such facts, and all prerequisites and
      requirements necessary to the validity of any such sale shall be
      presumed to have been performed.
The Substitute Trustee’s Deed executed after the foreclosure sale notes that the
sale was conducted on November 2, 2010

      after public notice had been given of the time, place and terms of such
      sale by posting written notice thereof at least twenty-one (21) days
      before the date of such sale at the Courthouse door of Harris County,
      Texas, and by filing a copy of such notice in the office of the County
      Clerk of such County at least twenty-one days preceding the date of
      such sale.

Because the summary judgment evidence establishes that the Bank provided
proper notice of the foreclosure sale, appellants’ argument that the Bank did not
prove a valid foreclosure sale fails.

VI.   Appellants’ evidentiary complaints do not show that the trial court
      erred in granting the Bank’s motion for summary judgment.
      Turning to the merits of the summary judgment, appellants assert that the
Bank’s motion relied on inadmissible evidence. More specifically, they argue that
four paragraphs of the affidavit of Guido Piggott, the Bank’s custodian of records,
contain hearsay and legal conclusions not supported by underlying facts.

                                         19
      Summary judgment evidence must be presented in a form that would be
admissible at trial. Hou-Tex, Inc. v. Landmark Graphics, 26 S.W.3d 103, 112
(Tex. App.—Houston [14th Dist.] 2000, no pet.). Hearsay in an affidavit is a
defect of form. Id. at 112, n.9. To complain of such a defect, a party must object
in writing to the form of the summary judgment evidence, place the objection
before the trial court, and obtain a ruling. Id. Failure to accomplish all three steps
waives the objection. Id. While appellants did file written objections to Piggott’s
affidavit, they did not obtain rulings on those objections. Therefore, appellants
have waived their hearsay objections. Id.

      An affidavit that merely states a legal conclusion is incompetent to establish
the existence of a fact in support of a motion for summary judgment. Mercer v.
Daoran Corp., 676 S.W.2d 580, 583 (Tex. 1984). Thus, an objection that an
affidavit states a legal conclusion relates to a defect in substance, and it may be
raised for the first time on appeal. Progressive County Mut. Ins. Co. v. Carway,
951 S.W.2d 108, 117 (Tex. App.—Houston [14th Dist.] 1997, pet. denied). Even
if the trial court errs by considering conclusory evidence at summary judgment,
however, we will not reverse unless the party requesting reversal can demonstrate
that the error probably caused the rendition of an improper judgment. Walston v.
Anglo-Dutch Petroleum (Tenge) L.L.C., No. 14-07-00959-CV, 2009 WL 2176320,
at *8 (Tex. App.—Houston [14th Dist.] July 23, 2009, no pet.) (mem. op.).

      Here, the relevant document discussed in each of the allegedly conclusory
paragraphs was attached to Piggott’s affidavit and included in the summary
judgment record. Accordingly, we conclude the Bank provided adequate evidence
to support each challenged statement by Piggott. Delcor USA, Inc. v. Texas Induc.
Specialties, Inc., No. 14-11-00048-CV, 2011 WL 6224466, at *3 (Tex. App.—
Houston [14th Dist.] Dec. 13, 2011, no pet.) (mem. op.) (holding that attached

                                         20
invoices, customer balance sheets, and payment checks were sufficient to support
affidavit testimony that a contract existed between the parties). Moreover, even if
the challenged paragraphs contained unsupported legal conclusions, appellants
have not demonstrated that the trial court’s consideration of them resulted in the
rendition of an improper judgment. The paragraphs describe the effects of various
documents underlying this litigation.5 In each case, a copy of the referenced
document was attached to Piggott’s affidavit, so the court could determine the legal
effect of the document for itself. Because the underlying documents addressed in
each of the challenged paragraphs of Piggott’s affidavit were included in the
summary judgment record, we conclude any error in admitting the challenged
portions of Piggott’s affidavit was harmless. See Peoples v. Genco Fed. Credit
Union, No. 10-09-00032-CV, 2010 WL 1797266, at *4 (Tex. App.—Waco 2010,
no pet.) (mem. op.) (holding consideration of conclusory affidavit regarding
contract was harmless when underlying contract was in summary judgment

       5
         In their brief, appellants challenge paragraphs 8, 9, 10, 12, and 13. As to paragraph 13,
however, appellants do not explain why they believe it contains inadmissible evidence.
Therefore, their challenge to paragraph 13 is waived. Tex. R. App. P. 38.1(i). Appellants did
specifically address the remaining paragraphs in their brief. Paragraph 8 deals with the
Assumption Agreement and Special Warranty Assumption Deed. In paragraph 8, Piggott stated
“pursuant to [the Assumption Agreement] Grace . . . assumed payment of the Note and all other
obligations.” Piggott continued that, as a result of the Special Warranty Assumption Deed, “title
to the Property was transferred to Grace from Cypresswood.” Paragraph 9 addresses the
Renewal Agreement. In paragraph 9, Piggott stated that as a result of the Renewal Agreement,
“the terms of the Note as assumed were reinstated, renewed, modified and extended.” Paragraph
10 discusses Guaranty 3. According to Piggott, “[i]n order to induce the Bank to allow [Grace]
to assume the terms of the Note, [Mr. and Mrs. Morrow] executed [Guaranty 3] whereby each of
the Guarantors, jointly and severally, absolutely and unconditionally, guaranteed the prompt and
full payment of all indebtedness owing the Bank by Grace, including but not limited to, all
amounts due and owing the Bank under the Note, as modified.” Finally, paragraph 12 references
the Substitute Trustee’s Deed. In paragraph 12, Piggott states: “Due to Grace, Cypresswood and
all guarantors’ failure to pay the full amount due and owing the Bank under the Note, a
foreclosure sale was conducted in accordance with the Loan Documents and state law on
November 2, 2010, and the Bank was the successful purchaser of the Collateral. On November
2, 2010, the Substitute Trustee’s Deed was recorded in the Harris County Real Property Records
under Clerk’s File No. 20100471249, which evidences the Bank as the owner of the Collateral.”

                                               21
record).

      Finally, appellants challenge Piggott’s affidavit generally because they
contend it does not establish that it was based on personal knowledge. In his
affidavit, Piggott stated that he obtained personal knowledge of the facts contained
in his affidavit through his position as an executive vice president of the Bank.
Piggott also stated that he was a records custodian for the Bank and then explained
the Bank’s ordinary practices for maintaining records and averred that the attached
documents were “made or kept in the exact manner as described herein.”
Appellants do not point out how Piggott’s affidavit is deficient or indicate in any
manner what additional information should have been included in Piggott’s
affidavit to establish his personal knowledge.

      This Court recently held that an affidavit’s failure to affirmatively show how
the affiant has personal knowledge is a defect of form, so a litigant must object and
obtain a ruling from the trial court to preserve this complaint. Washington DC
Party Shuttle, LLC v. IGuide Tours, No. 14-12-00303-CV, 2013 WL 3226768, at
*10 (Tex. App.—Houston [14th Dist.] June 27, 2013, no pet. h.) (en banc).
Because appellants did not obtain a ruling, they waived their personal knowledge
objections. In any event, we conclude the statements by Piggott summarized
above adequately demonstrated his personal knowledge. See Rockwall Commons
Assoc., Ltd. v. MRC Mortg. Grantor Trust I, 331 S.W.3d 500, 511 (Tex. App.—El
Paso 2010, no pet.) (holding records custodian’s affidavit demonstrated personal
knowledge); see also Garcia v. Bank of Am. Corp., 375 S.W.3d 322, 330 (Tex.
App.—Houston [14th Dist.] 2010, no pet.) (holding affiant established personal
knowledge “via her position as vice president and assistant corporate secretary” of
bank); Ghia v. Am. Express Travel Related Serv., No. 14-06-00653-CV, 2007 WL
2990295, at *2 (Tex. App.—Houston [14th Dist.] Oct. 11, 2007, no pet.) (mem.

                                         22
op.) (holding custodian of records’ affidavit adequately demonstrated his personal
knowledge). Accordingly, appellants have not shown any evidentiary errors that
require reversal of the summary judgment.

VII. Appellants waived the Texas Anti-Deficiency Statute.
      Appellants next assert the trial court erred in granting the Bank’s motion for
summary judgment because it incorrectly determined they had waived the Texas
Anti-Deficiency Statute. In support of this contention, appellants make several
different arguments, which we address in turn.

      A.    Waivers of the Anti-Deficiency Statute are not void as against
            public policy.
      First, appellants contend that any waiver of the Texas Anti-Deficiency
Statute is void as against public policy. Many courts have held, however, that a
waiver of the Texas Anti-Deficiency Statute does not violate public policy.
LaSalle v. Bank Nat’l Assoc. v. Sleutel, 289 F.3d 837, 842 (5th Cir. 2002) (holding
Texas public policy does not prohibit waiving the Texas Anti-Deficiency Statute);
Interstate 35/Chisam Rd., L.P. v. Moayedi, 377 S.W.3d 791, 801 (Tex. App.—
Dallas 2012, pet. filed) (same); Kelly v. First State Bank of Cent. Tex., No. 03-10-
00460-CV, 2011 WL 6938522, at *8–9 (Tex. App.—Austin, Dec. 30, 2011, pet.
granted, judgm’t vacated w.r.m.) (mem. op.) (same); Segal v. Emmes Capital,
L.L.C., 155 S.W.3d 267, 279–80 (Tex. App.—Houston [1st Dist.] 2004, pet.
dism’d) (same). The cited cases have addressed, and rejected, each argument
raised by appellants in support of their public policy argument, and we agree with
their resolution of the issue. Because appellants have not put forward any new
reason to depart from this reasoning, we hold that the waiver of rights, remedies,
claims, and defenses under the Texas Anti-Deficiency Statute are not against the
public policy of Texas.

                                        23
      B.    The post-bankruptcy Assumption Agreement contains a valid
            waiver of the Texas Anti-Deficiency Statute.
      Appellants next argue that “the only loan agreement standing after the
various renewals and bankruptcy filings is the [Assumption Agreement,] and it
contains no waiver of the Texas Anti-Deficiency Statute.” While we disagree with
appellants’ premise that the Cypresswood bankruptcy eliminated all pre-
bankruptcy debts and contractual obligations, even if that were true, the
Assumption Agreement includes a valid waiver of the Texas Anti-Deficiency
Statute.

      First, the Plan expressly provided that Cypresswood did not receive a
discharge of any debt.     In addition, as mentioned above, the Plan allowed
Cypresswood to enter into binding contracts that it believed were in its best
interest. The Plan also provided that Grace would assume all obligations owed to
the Bank, including the obligation to repay the loan in accordance with all terms,
provisions, and other obligations of the applicable notes and deeds of trust. The
Plan expressly contemplated that Cypresswood, Grace, and the Morrows would
enter into an assumption agreement putting those requirements into effect.

      Pursuant to the Plan, Cypresswood, Grace, and the Morrows executed the
Assumption Agreement, the pertinent parts of which are set out above. In the
Assumption Agreement, Cypresswood and Mr. Morrow agreed that the “Loan
Documents” represented “valid and legally binding obligations of [Cypresswood]
and [Mr. Morrow].” Grace agreed to pay and perform all of the payment and
performance obligations of Cypresswood and to be bound by the terms of the
“Loan Documents.” In addition, the Morrows agreed “to timely pay and perform
all of the obligations for which [Grace] shall have liability under the Loan
Documents.” Most importantly for resolution of this issue, the parties agreed “that

                                        24
the Borrower Parties [—defined as Cypresswood, Grace, and Mr. and Mrs.
Morrow—] have no defenses, setoffs, objections, claims, counterclaims, or causes
of action of any kind or nature whatsoever with respect to the Loan or the Loan
Documents . . . .” The quoted language waived appellants’ right to the fair market
value set-off provided by the Texas Anti-Deficiency Statute. See Haggard v. Bank
of the Ozarks, Inc., 668 F.3d 196, 202 (5th Cir. 2012) (holding that similar
provision waived the guarantor’s right to a fair market value set-off under the
Texas Anti-Deficiency Statute).

      C.     Guaranty 3 also contains a valid waiver of the Texas Anti-
             Deficiency Statute.
      With respect to the guaranties by Mr. and Mrs. Morrow, appellants contend
Guaranties 1 and 2 are not relevant because they predate the Cypresswood
Bankruptcy Plan.     Appellants then argue that the waiver of the Texas Anti-
Deficiency Statute found in Guaranty 3, the only post-bankruptcy guaranty
agreement, is not effective because it is not conspicuous. This argument ignores
that the Morrows also agreed to a valid waiver of the statute in the post-plan
Assumption Agreement, as explained above. Moreover, we once again disagree
with appellants’ basic premise that the pre-bankruptcy Guaranties are not relevant.

      But even if Guaranty 3 were the only relevant agreement, we conclude it
also contains a valid waiver of the Texas Anti-Deficiency Statute. Just as a waiver
of the Texas Anti-Deficiency Statute does not violate public policy, there is also no
requirement that the waiver be conspicuous. Segal, 155 S.W.3d at 283.

      Appellants also argue the waiver found in Guaranty 3 is ineffective because
it does not provide sufficiently specific notice of the defense being waived. The
Guaranty 3 waiver provides: “Guarantor expressly waives all rights, remedies,
claims and defenses based upon or related to Sections 51.003, 51.004, and 51.005

                                         25
of the Texas Property Code, to the extent the same pertain to or may pertain to any
enforcement of this Guaranty.”               We conclude this language was sufficiently
specific to provide notice to the Morrows that they were waiving their right to a
fair market value set-off under the Texas Anti-Deficiency Statute.                            New
Millennium Homes, Inc. v. Texas Cmty. Bank, N.A., No. 09-12-00073-CV, 2013
WL 645235, at *3 (Tex. App.—Beaumont Feb. 21, 2013, no pet.) (mem. op.);
Moayedi, 377 S.W.3d 795–802; Kelly, 2011 WL 6938522, at *7; Segal, 155
S.W.3d at 277–81.

                                         *       *      *

       Because we hold that appellants waived their right to a fair market value set-
off pursuant to the Texas Anti-Deficiency Statute, we need not address their
arguments that the trial court erred in granting summary judgment for the Bank
because (1) there was inadequate time for discovery on the issue of the market
value of the Property, and (2) there were genuine issues of material fact on the
market value of the Property. The resolution of those issues is immaterial to the
outcome of this appeal.6 See Segal, 155 S.W.3d at 284 (“Because the Segals
validly waived their rights to seek a fair-market-value determination and an offset,
it is immaterial whether the Segals raised a fact issue on the three properties fair-
market value.”).

VIII. Appellants did not plead the affirmative defense of penalty.

       Finally, appellants contend that any waiver of the right to an offset against
the deficiency based on the fair market value of the Property creates an
unenforceable penalty.         An assertion that a contractual provision creates an
       6
          We also note that appellants failed to preserve their argument that the time for discovery
was inadequate because they did not file a verified motion for continuance in the trial court. See
Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 647 (Tex. 1996); Triad Home Renovators,
Inc. v. Dickey, 15 S.W.3d 142, 145 (Tex. App.—Houston [14th Dist.] 2000, no pet.).

                                                 26
unenforceable penalty is an affirmative defense that must be raised in the party’s
responsive pleadings. See Tex. R. Civ. P. 94; Dunlap v. Gayle, No. 13-12-00105-
CV, 2013 WL 1500377, *6 (Tex. App.—Corpus Christi April 11, 2013, no pet.)
(mem. op.); Chan v. Montebello Development Co., L.P., No 14-06-00936-CV,
2008 WL 2986379, *2 n.4 (Tex. App.—Houston [14th Dist.] July 31, 2008, pet.
denied) (mem. op.).    Appellants did not plead unenforceable penalty in their
answer or raise it in their summary judgment response. Accordingly, they have
waived this defense. See Hassell Const. Co., Inc. v. Stature Commercial Co., Inc.,
162 S.W.3d 664, 667 (Tex. App.—Houston [14th Dist.] 2005, no pet.).

                                  CONCLUSION

      Having addressed and rejected each argument contained in appellants’ single
issue on appeal, we overrule appellants’ issue and affirm the trial court’s final
judgment.

                                      /s/    J. Brett Busby
                                             Justice

Panel consists of Justices Frost, Brown, and Busby.

                                        27