The owners of District Realty Title Insurance Corp. have sued the Pennsylvania bank they bought the D.C. company from last year, saying the seller "misrepresented" facts by not disclosing the kind of coverage it provided for construction loans held by Battlefield Builders Inc.

As a result of the Prince William County developer's default on its loans and debts to scores of other creditors, the title insurance company faces millions of dollars in claims and damage to its reputation, according to court documents.

Suppliers and subcontractors have filed about $5.5 million in liens against Battlefield's residential construction projects, an amount close to the title company's entire net worth of $7 million in 1984, according to the lawsuit filed this week in U.S. District Court in Alexandria by Title Insurance Acquisition Inc. (TIA) of Falls Church. TIA is a wholly owned subsidiary of Epic Holdings Ltd., a nationwide real estate conglomerate.

District Realty Title President Samuel R. Gillman and other employes of the firm told TIA the insurance policies on construction loans in "at least seven" Battlefield subdivisions in Northern Virginia did not contain protection against liens on the property when, in fact, the policies did include this coverage, the documents said.

In addition, the suit alleges that officials of the former owner, Industrial Valley Bank and Trust Co., paid Gillman $100,000 "to refrain from disclosing" any facts that would have dissuaded the Falls Church company from buying District Realty Title. TIA paid $10.5 million for the title company, the suit said.

TIA asks that Industrial Valley Bank be ordered to return the $10.5 million purchase price and take back all the District Realty Title stock, pay an additional $30 million in damages, and cover any losses and claims against TIA as a result of the bank's actions.

J. Roger Williams, senior vice president and general counsel of Industrial Valley Bank, said the allegation that the bank "made misrepresentations in connection with the sale is unfounded." He added that it is "categorically untrue" that the bank paid Gillman not to disclose facts that might prevent the sale to TIA. Williams said he had not seen a copy of the suit and did not want to make any other comment until he had read it.

The new owner did not know until about six months after the purchase that District Realty Title had extended an estimated $40 million in insurance on Battlefield projects, the court document said. "Neither the fact or the amount of coverage extended on mechanic's liens" in Battlefield policies "was disclosed to TIA" in connection with its purchase of the title company, according to the suit.

A standard title insurance policy does not provide mechanic's lien coverage, according to Barbara McKinney, a director and general counsel for TIA. To give this protection a company must add "affirmative coverage" when issuing a policy.

A mechanic's lien asks a court to order sale of a property to cover unpaid bills for work on it. In practice, a title insurance company, the lender or owner of a home usually pays off the debt to prevent a court-ordered sale, according to attorneys familiar with mechanic's liens.

A title insurance company will defend its policy holders in court against mechanic's liens, and if the defense fails, will pay claims. McKinney said TIA will go to court on behalf of homeowners who already hold District Realty Title policies. But she backed away from an earlier assurance that the company would provide mechanic's lien protection to buyers of Battlefield homes who do not already have a policy, saying these decisions would be made on a "case by case" basis.

The lenders who foreclosed on Battlefield property in Northern Virginia expect to sell the homes at prices offered last fall by the developer before the company defaulted on its loans, according to a real estate sales agent.

Prospective buyers who held contracts with the Prince William construction firm will be able to buy the houses at prices listed in those contracts in nearly all cases, said the agent, John A. Dunn of Coldwell Banker, the realty company handling sales of Battlefield property. The buyers must sign new agreements if they want to go through with their purchases because a foreclosure has the legal effect of cancelling sales contracts.

Foreclosure sales were held on Battlefield property late last year and early in 1985 after the company ceased operation last November and defaulted on its loans. Battlefield's owners, Mary Ann, Jimmy and Harry Ghadban, who are brothers and sister, filed individual bankrupty petitions recently, listing debts of $104.8 million, the total owed to creditors of their companies and for which they together are liable. In addition, each listed individual debts of more than $500,000. The federal bankruptcy court has scheduled a meeting of Battlefield's creditors for April 1.

Two buyers who held Battlefield contracts on homes in the King's Mill subdivision, also known as Cloverhill, in Prince William County have signed new contracts with the present owner at the original prices -- about $105,000 and $115,000, Dunn said. The two purchasers also will get credit for deposits they paid to Battlefield, he said.

The banks and savings and loans that now own other Battlefield property in King's Mill and homes and lots in other subdivisions, including Poplar Tree, Minnieville Manor, Fernbrook, Riverview Estates, Laurel Ridge, and Gatepost, "are trying to live with the former contracts, and probably in 98 percent of the cases they will be able to," Dunn said. "In some cases they can't because of what Battlefield agreed to," in the way of settlement costs it would pay, he added.

Battlefield had promised 10-year warranties on many of its homes, and most of the new owners will not be able to provide such lengthy guarantees, according to Dunn. Most warranties will extend for 60 days to a year, with longer guarantees in some instances on individual items such as roofs and appliances, he added.

Three Battlefield contract holders plan to go through with purchases in Poplar Tree, in Fairfax County, where six houses were nearly complete and about 15 others were in various stages of cosntruction when the developer folded, Dunn said. Another three Battlefield buyers in Minnieville Manor, in Prince William, plan to stick with their purchases, he said. A construction company will begin work soon on 16 houses that were under way last fall.

Holders of contracts on more than 20 houses in Chestnut Run, a Loudoun County subdivision, were told two weeks ago that they probably will be able to buy the houses at the prices in their Battlefield contracts. The new owner, SKI Real Estate Inc., a Pennsylvania company, also will give buyers credit for deposits they paid to Battlefield.