In what order are the proceeds from a foreclosure sale distributed?

The correct understanding of the distribution order of proceeds from a foreclosure sale is that it typically involves first satisfying the costs incurred during the foreclosure itself, followed by the payment of debts to secured creditors. This sequence ensures that the expenses related to seizing and selling the collateral are covered before addressing the outstanding debts owed to secured parties.

When a foreclosure sale occurs, the proceeds from the sale are first used to pay the costs associated with the sale, which can include things like attorney's fees, appraisal costs, and any other expenses related to the sale process. After those costs are deducted, any remaining funds are then applied to the debts of secured creditors in the order of their seniority. This means that secured creditors with higher priority claims will be paid first, up to the amount of their secured interest.

In the context of the other choices, the incorrect options do not accurately reflect this established order. For instance, suggesting that secured debts are paid before costs ignores the necessity of covering the expenses associated with the foreclosure process upfront. Similarly, the idea of addressing debtor liabilities before creditors or conflating the treatment of costs with excess returns also misrepresents the structured approach to distributing sale proceeds.