Last year, convinced that landlords and owners of second homes were claiming tax breaks they didn't deserve, legislators unanimously passed a law requiring all Maryland homeowners to apply for a valuable tax credit that they've gotten more or less automatically until now.
Since December, though, state lawmakers have been peppered with questions and complaints from homeowners about the new application requirement.
Now, they're considering calling the whole thing off.
"In an era of foreclosures and recession, we should take a step back and find a better way," said state Sen. Edward J. Kasemeyer, the Senate majority leader. The Howard County Democrat is chief sponsor of a bill to repeal the requirement.
Yet the problem that lawmakers initially said they wanted to correct remains: Some, perhaps many, owners of rental property or second homes are getting a lucrative tax credit meant only for owner-occupied homes.
State officials say they don't know how many of the 1.4 million properties getting Homestead Tax Credits do not deserve them, because there's no easy way to check.
But in one county, Anne Arundel, officials say they revoked 300 improperly claimed tax credits last year, recovering more than $300,000 in revenue.
And in Montgomery County, one of a handful where rental homes have to be registered, officials checked the list a few years ago and found 2,700 improperly claiming the credit.
Statewide, budget analysts have estimated that if 2 percent of property owners are claiming the credit improperly, local governments might be missing out on $10 million a year in property tax revenue. The state, which also levies a small property tax, would miss out on $700,000 a year.
But that 2 percent estimate is just hypothetical, officials acknowledge. The percentage of improperly claimed credits - and the amount of taxes dodged - might be higher.
A spot check by The Sun of about 90 homes listed online for rent in Baltimore and Howard counties found that 1 in 3 is identified in state records as the owner's principal residence. That means the owners of those rental properties claim to be living there, potentially allowing them to get a Homestead Tax Credit they don't deserve.
"There's a serious fraud problem," said Sen. Jim Rosapepe, a Prince George's County Democrat who helped push the law through last year. "We have people claiming they're living in houses they're not in, and that's not fair to taxpayers."
The Homestead Tax Credit has been a boon for homeowners, as real estate assessments soared along with housing prices. Under the credit, increases in assessments are limited to 10 percent a year - or less, in those counties that have adopted lower caps, as is the case in most Baltimore-area jurisdictions. Owners with the credit pay taxes on less than the full value of the property.
The credit, which can trim hundreds of dollars off a homeowner's tax bill, was worth $1 billion to state property owners last year.
The credit gets attached to properties when they change hands, as buyers sign an affidavit saying whether they intend to live in the home. Some might knowingly misstate their intentions to get the tax break, officials say. But others likely have strayed unwittingly, they say, by buying a second home and renting the old one out without notifying anyone because they were oblivious to the tax credit.
Claudia Raymond said she's in the latter category. The Indian Head resident acknowledged last week that she and her husband bought two other houses last year, one in St. Mary's County and another in Waldorf in Charles County.
Raymond said the couple moved into each house but found they could not afford it. So they have moved back to the Indian Head home they've owned for several years and are in the process of selling the other two.
All three properties are listed as principal residences on the state assessments database. Raymond said she didn't know about the tax credit, nor did she recall signing anything at settlement indicating their intentions to live in the new houses.
"I don't remember checking off any affidavit," she said. "Normally, I thought the mortgage company takes care of that stuff."
The law passed last year was designed to weed out erroneous credits like these. The state advised homeowners of the need to apply for the credit in more than 700,000 property assessment notices mailed out in December.
However, the notices landed in Marylanders' mailboxes at a particularly anxious time, with the housing market in a swoon and with taxes going up.
"The timing was bad," said C. John Sullivan Jr., director of the state Department of Assessments and Taxation.
The notices, and the resulting news coverage, got people's attention. A state hot line set up to answer questions has been ringing nonstop, Sullivan said, and about 364,000 applications have been filed.
However, some are duplicates sent in by people worried that their first application was not promptly acknowledged, or by homeowners who haven't been notified to apply. Only one-third of Maryland's property owners have received the notices because the state assesses a third of all properties every year.
Realtors, pointing to the public's anxiety and confusion, have been lobbying for repeal of the requirement.
"We're afraid that this system is going to shut some people out because it's cumbersome," said Mark Feinroth, lobbyist for the Maryland Association of Realtors.
But with money tight, some think it would be a mistake to give up on verifying that people are getting the tax credits they deserve.
"If there's ever a good time for it, it's now," said Louis Wilen, an Olney resident who helped get the application requirement passed. "This is when you want to catch people who are cheating."
Wilen, 50, is a soft-spoken father of two who works for a large computer company and helps out with the local parent-teacher association. But he has been on a minicrusade to stamp out homestead tax abuse since discovering that a house for rent in his neighborhood a few years back was still listed on tax records as owner-occupied.
He ferreted out hundreds more rental homes in Montgomery County improperly getting tax credits and reported them to the county.
Then, convinced that the abuse was widespread, he met with his local legislator, Democratic Del. Anne R. Kaiser, and persuaded her to put in a bill to weed the tax dodgers out.
Kaiser acknowledged that the state could have done a better job of communicating with taxpayers. But she defends the application, saying that there's potentially a lot of fraud going on, and this is the only effective way to catch it.
"This is not about keeping this from people who deserve it," Kaiser said. But, "anytime some people avoid paying their taxes, the rest pay more."
tim.wheeler@baltsun.com