My wife and I were given funds for a house... The funds were from my father in law, who directly wired money to title company for payment... This was a gift (verbally) nothing about repayment what so ever... Now our families are not talking and he is demanding that we sign a mortgage with him... The house is in our names free and clear... what recourse does he have if any??

If you closed on this house your mortgage is likely already signed sealed and in force. He can sue you and try to make his case in court but at this point you can just sit back. This will be messy for a long time, in-laws do not have short memories or deep pockets.