I am buying my parents house. They own it free and clear. They are financing the purchase. I know there are no liens against the house and they have clear title. Should I still purchase title insurance? Also, I will sign a promissory note. Do we need to draw up a mortgage document? If so, where do I get such a document and how and with whom does it get "filed"?

SAMPLE MORTGAGE (http://www.luxuryhomesandproperties.com/forms/mortgage.htm)

Yes I would prepare a mortgage (see link) and file it with the new deed. If you are fully confident that the property title is clear, have you parent prepare a warranty deed.