Happened to me too. I am fairly certain that it is supposed to revert but doesn´t. At least not right away. Maybe there is a substantial time delay.
That being said the first penalty is worth paying for potentially doubling your realm site from 50 to 100. The overextension debuff doesn´t make it unprofitable to grow, it just encourages you to be picky about the provinces that you keep.

I like the idea of anything that makes it a bit more difficult to snowball and/or gives you some sort of advantage for playing tall, especially since PoD is more of an rpg than the vanilla game. It's just annoying that I'm stuck over the cap when I have no interest in conquering that much territory.

The game checks roughly each 5 years to see if it should chance your overextension level.
We haven't find a way to make it more reactive yet.

Yeah, getting rid of bureocrats takes some time. Greetings from Europe.

Originally posted by Karde:

The game checks roughly each 5 years to see if it should chance your overextension level.
We haven't find a way to make it more reactive yet.

Maybe add a decision one can make to change that? "re-asses land control" or something like that that would allow us to update that early.