1. The lyrics
2. The composition
3. The recording
These can all be owned by different people or the same person. The "royalty free covers" you mention are people abusing the rights of one of those. They're not avoiding royalties, they just havn't been caught yet.
Regarding what you described, I don’t think I encountered this in the wild enough to remember. IANAL but if not cleared/registered properly as a cover it doesn’t seem to be a workaround or abuse, but would probably be found straight up illegal if the rights holder or relevant rights organization cares to sue. In this case, all I can say is “yes, some people do illegal stuff”. The system largely works.