NEW YORK (MONEY Magazine) - Giddy about soaring real estate values? Darlene Murdick was too - until she saw her latest property tax bill.

A registered nurse in South Bend, Ind., she began investing in real estate 14 years ago to boost her income and provide for the long-term care of a daughter with Down's syndrome.

By 2003, the 40-year-old owned 67 apartments in what was then a rising local real estate market. Murdick's financial future -- as well as that of her daughter -- looked bright.

Then came Indiana's statewide reassessment.

"It was crazy," she says. "The actual values were nowhere near what the assessed values were."

Murdick's total tax bill doubled just when her local rental market had softened. Tenants moved out, fearing rent hikes. When she tried to sell properties, no buyers were willing to meet her asking prices.

"Not with the taxes jacked up," she says. Unable to come up with the additional taxes, Murdick walked away and let the banks foreclose.

Her experience may be extreme, but it's emblematic of a nationwide property tax phenomenon.

The spike in U.S. house prices -- 36 percent over the past four years -- has been a boon for sellers, yet rising values can be bittersweet for neighbors left behind.

Higher prices mean higher property tax assessments, but since these price gains exist only on paper, many homeowners struggle to pay their suddenly higher tax bills.

In the second quarter of 2004, for example, state and local property tax collections increased 9 percent, double the growth rate for personal income in the same period.

The good news is that property taxes are one area where fighting city hall usually pays off.

According to the American Homeowners Association (AHA), just 2 percent of assessments are appealed, even though about a third of all properties are overassessed. Among those that are appealed, a whopping 75 percent result in a reduction of taxes.

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Mounting your own appeal can be time consuming. (Unless there are thousands of dollars at stake as opposed to hundreds, hiring an attorney is probably not worth your while.)

But the Internet has made it easier for you to determine if a municipal assessor's appraisal is out of line.

You can also turn to two excellent how-to-appeal guides: The National Taxpayers Union ($7 at ntu.org) and the AHA ($7 at homeownertaxcut.com) each offer one.

Don't be fooled by assessor gimmicks "Fractional assessment," for instance, is a common practice that can trick people into believing they're undertaxed when the opposite may be true.

Consider Georgia.

Property there is assessed at 40 percent of the full market appraisal, so a Georgian who owns a home worth $300,000 and assumes he's getting a bargain if his assessment says $180,000 is wrong -- his assessment should be $120,000.

If the local tax rate is 2 percent, he's paying $1,200 too much.

Check the records for errors Visit your assessor's office and look over your property record card.

Ask for the assessor's work papers too (you're entitled to them): Perhaps he goofed on the bedroom or bathroom count, or inflated your square footage.

See whether the assessor considered defects, such as a leaky roof or an unusable fireplace, that can reduce your home's market value.

Review assessments and sale prices of similar homes nearby Once upon a time, this meant spending several hours at City Hall, poring over deeds and tax records.

These days, you can do much of the legwork online, either on local government websites or on real estate sites like Domania.com.

If comparable sales in your area are out of whack with the appraisal on which your assessment is based -- or if similar homes have lower assessments -- you have solid grounds for an appeal.

See if your area offers tax breaks Eligibility for things like homestead exemptions or rebates can vary, covering either all homeowners in a state or just subsets like veterans or the elderly.

Many owners, however, don't know these programs exist.

Wisconsin, for instance, offers property breaks for low-income homeowners, but only 43 percent of those eligible have actually applied.

Come prepared to your hearing Put as much of your case as possible in writing, and bring enough copies for each member of the appeals board. If you think the assessor missed cracks in the foundation, bring photos.

If you're arguing that your assessment doesn't jibe with recent sales in your neighborhood, bring documentation of those sales.

Don't be greedy If your case is borderline, don't bring it.

David Hugin, a real estate attorney in Austin, has seen plenty of weak appeals result in higher, not lower, assessments for the homeowners. Unless your home is overassessed by 5 percent or more, he says, it's probably not a good idea to appeal.

If all else fails, try politics Proposition 13 -- California's controversial 2 percent a year cap on property tax hikes -- was spawned by a runaway '70s real estate market similar to the one that exists today.

In Indiana, the Michiana Income Property Owners Association is now trying to drum up support for a state referendum modeled after Proposition 13. Among its leaders? One Darlene Murdick. "Without it," she says, "they're going to run everybody out of here."