This is a double lane violation. One for Defense NOT being in the first lane space, and one for the Offense BEING there when he shouldn't be. (See ART 2 in Hawk's post, disregard the rest of it). If the ref notices it before the ball is at the disposal of the free thrower, he should just tell the kids to get in the right spaces. If he notices it after the thrower has the ball (like in your example), blow the whistle right away, no shot, or if the kid does shoot, basket can't count.
If this is the last free throw, then you administer by AP possession. If there is one more shot, players occupy correct lane spaces, thrower shoots, and play on from made or missed free throw.
PS It should ALWAYS be noticed before thrower gets ball.
That is the official's job, otherwise, he screwed up.
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