(a) The homestead property becomes property of an individual or individuals:

(A) By inheritance or devise; or

(B) If the individual or individuals are heirs or devisees, as defined under ORS 111.005, in the course of settlement of the estate;

(b) The individual or individuals commence occupancy of the property as a principal residence on or before August 15 of the calendar year following the calendar year of death; and

(c) The individual or individuals make application to the department for an extension of time for payment of the deferred special assessment for local improvement and interest prior to August 15 of the calendar year following the calendar year of death.

(2)(a) Subject to paragraph (b) of this subsection, an extension granted under this section shall be for a period not to exceed five years after August 15 of the calendar year following the calendar year of death. The terms and conditions under which the extension is granted shall be in accordance with a written agreement entered into by the department and the individual or individuals.

(b) An extension granted under this section shall terminate immediately if:

(A) The homestead property is sold or otherwise transferred by any party to the extension agreement;

(B) All of the heirs or devisees who are parties to the extension agreement cease to occupy the property as a principal residence; or

(C) The homestead property, a manufactured structure or floating home, is moved out of the state.

(3) If the department has reason to believe that the homestead property is not sufficient security for the deferred special assessment for local improvement and interest the department may require the individual or individuals to furnish a bond conditioned upon payment of the amount extended in accordance with the terms of the extension. The bond shall not exceed in amount double the special assessment for local improvement with respect to which extension is granted.

(4) During the period of extension, and until paid the deferred special assessment for local improvement shall continue to accrue interest in the same manner and at the same rate as provided under ORS 311.674 (3). No interest shall accrue upon interest. [1985 c.167 §10]