I can't imagine an attorney that would help you buy an REO and not push you to obtain title insurance. In New York State, this is how we protect title, and it's not even a matter of discussion.
But no, title insurance is not required. If you can afford to lose your entire investment and would just shrug it off as one of those things, then you probably don't need title insurance.
If you have followed the news about bank foreclosures, you know that some legal action by previous owners is being contemplated against foreclosures in states that use judicial foreclosure. New York is one of those states. Title insurance would protect your investment against anyone who successfully claims to own the house you just bought. It also offers other protections, but that's beyond the scope of this question.
I also recommend getting a market value rider on your title insurance policy. This will pay you the market value of the house, not just the amount you paid at time of closing. It only costs a little more. That REO is going to need work, and that is going to cost money.
The other thing you should get is landlord's insurance, if this is being purchased as an investment, or homeowner's insurance, if you plan to live there. Landlord's insurance is a great product, I wouldn't buy an investment without also getting a policy.
Karla Harby, VP
Charles Rutenberg Realty
New York City