Five years after Congress passed a law designed to clean up the title insurance business and lower the costs for home buyers, the same old network of industry middlemen is still reaping a $20 million-a-year bonanza in the Washington area.

Home buyers have paid more than $130 million for title insurance in Maryland, the District of Columbia and Virginia since 1974, but only $10 million of that has been paid out in claims.

For most other forms of insurance -- such as automobile, home and health -- between half and three-quarters of the money consumers pay goes back in claims.

In the case of title insurance, however, as much as $75 of every $100 collected winds up in a huge pot that is distributed to or otherwise benefits the lawyers, bankers, developers and real estate people who serve as middlemen.

A two-month investigation shows that the home buyers' money actually goes into:

Sales commissions of as much as 70 percent of the entire home buyers title insurance payment to middlemen, primarily settlement lawyers, who do little more than refer home buyers to the firms that sell the insurance. Some of these middlemen make more than $200,000 a year for performing a basically clerical task.

Free trips to Hawaii and the Caribbean, golfing prizes and other gifts for the middlemen.

Interest-free deposits of millions of dollars that the title insurance firms keep in local banks, sometimes as an incentive for business referrals. Many of the banks have corporate ties to the title insurance company depositors.

Special discounts to developers who can guarantee that people who buy homes from them will use the same title insurance firm as the developers.

Interest-free loans to middlemen who refer business to title insurers.

Free messenger service to middlemen for papers and files shuffled around the area as real estate purchases are completed.

Some of the title insurance business practices in the Washington area may be illegal, according to the federal officials who administer the 1974 law, which prohibits the insurance companies from rewarding the middlemen for simply referring customers to them.

But the federal regulators say that the law is so vague in parts that the insurance companies and industry middle have found several ways to circumvent it. In fact a larger portion of the money collected for the insurance is going back to the middlemen today than was the case before the antikickback law was passed.

These articles use the Washington area to illustrate a national problem and tell the story of a congressional reform that has not accomplished what was intended.

As James Starrs, real estate professor at George Washington Law School says, "Title insurance is the classic grab bag of dirty tricks. Everybody has a hand in the till."

Title insurance is usually required by lenders as a condition of any mortgage loan and often makes sense to someone purchasing a new home. For several hundred dollars, the insurance guarantees that the title to the property is clear of any claims and that if a dispute over the title arises, the home buyers and the mortgage lender will not lose their investments.

Since the settlement lawyers, real estate brokers, developers and bankers have contact with home buyers at an early stage of the process, they are in the privileged position to make recommendations and referrals to the companies that sell the title insurance.

Before 1974, many area lawyers collecting 25 percent kickbacks for referring home buyers to the title insurance companies. Now, for doing just a little more work, they are receiving the larger, hefty commissions of 50 to 70 percent of the premiums.

Hundreds of lawyers in Maryland and the District have accomplished this by serving as both settlement attorneys and agents for specific title companies. In Virginia, where the state bar association ruled that this dual role was a conflict of interest, many lawyers have set up their own title agencies apart from their law offices.

For their commissions, the lawyer-title agents perform two tasks. They refer home buying clients to the title insurance companies they represent and then issue two sets of insurance forms to the lenders and home buyers.

As an example of how easy and profitable the role of a lawyer-title agent is, consider the work of Robert A. McGinnis, a Falls Church settlement lawyer who incorporated his own title agency in 1976.

McGinnis says that in its first 33 months his agency earned more than $400,000 in commissions from title insurance companies for referring home buyers and filling out the insurance forms. His office secretary does the insurance work, which he describes as "basically mechanical, getting everything in the right slots."

"It's copy work," he says. "All you've got to do is flip through the manuals to see what you've got to do. If she [his secretary] has got questions, she calls the attorney for the insurance company and says: 'Here are the facts. I can't find it in the manual. Where do I go from here?'"

In Maryland, the work of lawyer-title agents is slightly more taxing. There, they make most of their own underwriting decisions -- which exemptions should be made to the coverage. Still, many of them admit that the insurance work requires no more than an hour of secretarial help.

When Clifton Eisele Jr., a prominent Maryland settlement attorney, was asked how much of the title insurance work he did himself, he smiled wryly and said: "I don't type."

The large commissions that lawyer-title agents such as McGinnis and Eisele receive from the insurance firms for this work is of concern to the federal regulators, who point out the section of the law that outlaws excessive compensation for settlement services.

"But the statue doesn't define 'excessive,'" explains Richard Patterson, a real estate official at the U.S. Department of Housing and Urban Development. "We don't consider a plain referral to warrant compensation. It becomes less clear-cut when you add on to that and actually provide some service."

Samuel R. Gillman, president of District-Realty Title Insurance Corp., the largest title insurance firm in Washington, said that commissions are at least a third higher than they should be because of rivalry among insurance companies for agents to bring in home buyer business.

"Every title insurance company is out trying to steal everyone else's agent," said Gillman. "This is a dog-eat-dog industry. It reminds me of the gasoline wars. It really boils down to the old story of how much do you want to pay for an agent."

A few title company officials fear that the competition for agents and the escalating commissions will erode annual profits, which have run less than 10 percent in recent years, and prompt questions about the reasonableness of current rates. Today, with a 70 percent commission, the agent gets $233 of the $333 that a home buyer would pay for title insurance on a $100,000 home.

"It sets up an atmosphere for people to question whether half our premium is necessary," said John Cooney, vice president of Chicago Title Insurance Co., one of the few firms in the area that recruits its own clients and does not use lawyer-title agents.

The agent inducements in this war-like business environment go beyond the lucrative commissions. One of the most common favors is an interest-free or low-interest loan to fledgling lawyer-title agents who need extra income to cover overhead expenses until business picks up.

Virginia lawyer McGinnis, for example, said his title agency's former parent firm, Pioneer National Title Insurance Co., told him to temporarily keep the full premium paid in early 1977 to help pay rent, telephone bills and salaries during a slack period. The difference between the commission and the full premium was $18,000.

Another increasingly common benefit offered by title insurers in Virginia is messenger service to shuttle the numerous insurance and legal papers between title agents and their clients, lenders and insurers. In today's world of high gasoline and car prices, the service means great savings for agents.

Pioneer National vice president W. Dawson Cave said his company has just begun messenger service in Virginia at an estimated cost of $15,000 to $20,000 a year for one delivery man. Commonwealth Land Title Insurance Co. has as many as 10 cars available for such services, former employes said.

The insurance premiums paid by home buyers also provide attractive social inducements for title agents.

Every year, for example, Pioneer National takes it top 25 agents in the country to the title industry's trade association annual convention in places such as Hawaii. American Title Insurance Co., which does a small amount of business in this area, has paid for a week in Hawaii for the agent with the greatest increase in volume that year.The next six to eight top agents were given a seven-day Caribbean cruise on a Norwegian liner.

District-Realty's Gillman said a competing firm once offered him a trip to Europe and a mink coat for his wife if he became an agent for that company. As the head of his own company, Gillman said he spends up to $50,000 a year to entertain agents.

Each year, District-Realty sponsors a golf elimination contest for agents at the Bethesda Country Club and sends the winner to Philadelphia for the Industrial Valley Golf Classic.

Lawyers Title Insurance Corp. focuses special attention on realtors in the area. For example, the company presents the "Presidents Cup" to the winner of the Prince George's Board of Realtors annual golf outing. The insurer also gives the outgoing president of the board a bronzed reproduction of the Declaration of Independence at the board's annual elections meeting.

The social and business benefits that flow to title agents raise questions among federal regulators. The law prohibits the giving of a fee or a "thing of value" that is worth more than services rendered, but fails to define the term "thing of value" or set limits on the giving.

The law is clearer on the question of title company banking practice, however. Insurers cannot maintain "abnormally large" interest-free accounts at banks that refer them business. It is permissable for them to keep "any account reasonably needed [by the insurers] in the normal course of business."

In practice, the millions of dollars that flow daily through title companies are often placed in non-interest bearing accounts, providing local banks with a rich source of investment capital. There are two kinds of such accounts: escrow funds, or home buyer moneys held by the insurers until settlement, and general operating funds. Escrow money cannot by law earn interest for the depositor. General funds can draw interest.

Annual reports filed by title insurers show that large sums of both kinds of accounts languish in interest-free local bank accounts. For example, on Dec. 31 last year, banks in the District and its two neighboring states were holding $15.6 million in interest-free balances -- the great majority was escrow funds -- deposited by 11 title insurance firms.

Some of the largest interest-free accounts, the records show, were kept at banks with corporate ties to the title firms. For instance, Title Guarantee Co., the largest insurers in Maryland, had interest-free deposits last Dec. 31 of $1.4 million -- including $1.1 million in general funds -- in five Maryland banks whose chief officers also serve as directors of Title Guarantee.

On the same day, Lawyers Title Insurance Co., the biggest insurer in Virginia, was keeping $3.7 million [more than a quarter was general funds] in about 60 interest-free bank accounts. While most of the banks were given small deposits, a few were singled out for more favorable treatment: w

More than $1 million was kept in United Virginia Bank, including $109.262 in general funds. The bank's board chairman, Richard H. Dilworth, also serves as a director of Lawyers Title.

$386.000 was deposited at Central National Bank, including $276,706 in general funds. The bank's president and chief executive officer, Carroll Lee Saine, also is a Lawyers Title director.

$250,000 in general funds was kept at First & Merchants National Bank as well as $75,000 in escrow funds. Lawyers Title owns 15,000 shares in First & Merchants Corp., the bank's holding company, according to last year's report.

Most title company officials say their banking policies are not aimed at soliciting business, although many acknowledge that lenders often refer borrowers to certain insurance firms. H. Randolf Farmer, an assistant vice president and spokesman for Lawyers Title, refused comment on his company's bank practices, saying only that "banks are a source of business for title companies, but I don't know how much comes from which banks."

Chicago Title's Cooney, however, said some title firms consider their banking policies as a way to extend good will to banks that can return the favor someday.

"If someone asks a loan officer for the name of a title insurer, he might mention you, sure, or you might be on his list," he said. "Obviously, there's a nice little cozy relationship all the way around."

A final business group singled out by title insurers for special treatment is subdivision and condominium developers who need title work at three levels: when they acquire the property, apply for construction loans and sell individual lots or units to home buyers.

Landing such "cradle to grave" arrangements with a developer is highly lucrative for title companies because the work they do at the initial stage only has to be updated at subsequent levels. "Once you've done one," said Pioneer National's Cave, "you can do 'em all. It's like a cookie cutter."

In return for the developer's pledge that he will refer his home buyers to the title insurance company, he is often rewarded with a free initial title examination and sharply cut rates for the insurance during the predevelopment stages.

"In the end," says Cooney, "the purchaser is paying the developer's bill and doesn't realize it."

This arrangement goes on despite a provision in the federal law that prohibits the offering of settlement services at "abnormally low rates or at no charge at all" to builders who agree to refer purchasers of the completed homes to a title insurer.

John Ribble III, a Fairfax title insurer, said the practice might be a violation of the federal law, but he still feels compelled to offer the special discounts because "I've heard what other people are offering and I've got to compete with them."

The long list of inducements -- from fat commissions to developer discounts -- has led some public officials to charge that the title insurance rates that enrich the middlemen are much too high and should be revised to reflect losses, like other forms of insurance.

"You're basically paying to grease the system," said Maryland Del. Luiz Simmons (R-Montgomery), who has askd the state insurance commissioner for a rate review. "Any part of title insurance premiums that is not going to defray the underwriting loss is unreasonable."

The average losses of title insurers -- 3 percent of income -- are tiny compared to other kinds of insurance. For example, casualty and liability insurers pay out between 58 and 75 percent of their premiums in losses, while health insurance firms lose as much as 80 percent of their earnings.

But title insurance executives say such comparisons are misleading because of the special nature of their business. While other insurers protect against future events, such as death and injury, title firms insure against past events that could endanger a property title.Title insurers try to protect losses by identifying and removing title problems, they say.

They also argue that the distribution of money to the middlemen is a necessary part of doing business and that rates would not drop if the commissions and other inducements were eliminated.

But a recent experience in North Carolina indicates otherwise. Since the legislature there passed a law in 1973 prohibiting the payment of commissions to lawyers, lenders and Realtors, title insurance premiums have fallen more than 40 percent.

Title insurance rates in this area have remained the same for more than 30 years, even though soaring housing prices have provided a substantial increase in premium incomes. Statistics in Maryland, for example show that since 1946 premium earnings have risen 3,200 percent, while losses only increased from .5 percent of income to 3.8 percent.

State insurance commissions in Maryland and Virginia have the authority to regulate title insurance rates, but have largely ignored the industry. In the District, title insurance is specifically exempted from the insurance code.

In Maryland, the legislature has attempted in recent years to reform certain title insurance practices, but the bills never survive the earliest tests. The measures fail, according to their sponsors, for one of the same reasons title insurance practices have become what they are today -- ambitious lawyers.

The legislature, heavily weighted with lawyers, includes at least 20 current and former members who are licensed as agents to title insurance companies.

"When you talk about legislation," said Eugene Graham, an official in the state insurance division, "the question is, 'Whose ox is going to be gored?'"