If the defendant is entitled to an exemption as provided in § 651-92, and from the appraiser’s report, it appears to the judge that the real property claimed can be divided without material injury and subject to applicable state and county land use, zoning, and subdivision laws, the judge shall, by order, direct the appraisers to set off to the defendant so much of the real property, including the residence and outbuildings, as will amount in value to the real property exemption and all liens and encumbrances and the execution may be enforced against the remainder of the real property subject to all liens and encumbrances recorded prior to the lien under which sale is made.

If a sale is made, the proceeds thereof shall be applied in the following order of priority: first, to the satisfaction of the execution costs, attorney’s and appraiser’s fees, and any other fees that may necessarily arise; second, to the satisfaction of the lien under which the sale is made; third, to the discharge of any subsequent liens and encumbrances according to their priority, and the balance, if any, to the defendant. The sale shall operate to extinguish subsequent liens and encumbrances on the remainder sold without forcing prior lienors and encumbrancers to exercise their right of recovery.

As used in this section, “material injury” means that the value of the real property left after the set off to the defendant is less than: all liens and encumbrances on the real property recorded prior to lien under which sale is made and an amount equal to estimated execution costs, attorney’s and appraiser’s fees, and other fees.