EDIT: I miss read the image and saw a carbonyl group where there was an alkene. This explanation has been changed.
This is my guess on what is occurring (an electrophilic addition to an alkene):
- The nitrogen-oxygen bond on the amide is severed, forming a carboxylic acid an an electron deficient amide. The electron pair of this carboxylic acid is stabilized by resonance. What is left is a nitrenium ion ($\ce{NR2^{+}}$), which is described on Wikipedia as
Nitrenium species have been exploited as intermediates in organic reactions. They are typically generated via heterolysis of N–X (X = N, O, Hal) bonds. For instance, they are formed upon treatment of chloramine derivatives with silver salts or by activation of aryl hydroxylamine derivatives or aryl azides with Brønsted or Lewis acids. The Bamberger rearrangement is an early example of a reaction that is now thought to proceed via an aryl nitrenium intermediate. They can also act as electrophiles in electrophilic aromatic substitution.
The mechanism for an electrophilic aromatic substitution is similar to that of an electrophilic addition to an alkene.
- The nitrenium ion then performs an electrophilic attack on the alkene (second carbon of the oxolane), with beta carbon undergoing a nucleophilic attack by either water in neutral solution or a hydroxyl group in basic solution, forming the primary alcohol. These two processes are likely concerted (otherwise, there would be the formation of a primary carbonation).
Below is a scheme for the predicted mechanism.