It is a nice safe long-term spot if you're approaching it with a more long-term traditional real estate mindset.  

The calculation involves:Selling Price: $1,075,000Original Purchase Price: $355,000Depreciation Recapture: $105,300 (taxed at 25%)Capital Gains: Sale price minus original cost, minus depreciation, minus selling costs (~15-20% federal capital gains rate for their income bracket).State Taxes: Since the property is in California, state capital gains taxes will also apply.Given the multiple layers, I’d highly recommend your parents work with both a CPA experienced in real estate and a qualified intermediary for the 1031 if they choose that route.If you need recommendations for professionals in Illinois or California, feel free to ask!

Ignore it, for real...it's baseless. 

Also, if your wife and her parents were the real estate investors first, why aren't they weighing in? 

You're paying yourself back interest, the principal is out of the market and not going down, AND you're using the funds to build equity in real estate.

Find a great real estate attorney to help you with:1) Putting a lien on the property, with your aunt's consent, to cover any work you do.- Ask the attorney if your aunt & dad need to authorize lien, or just aunt.2) Understanding your options to force payoff of the lien.- Ask attorney how you can enforce collecting on the lien when you need to.3) Getting full control of the property, while allowing your aunt to keep her ownership.- Have attorney draw up a contract to do this.Suggest you offer your dad some cash, now or in the near future, to motivate him to transfer his ownership to you.It may not work out, but you will learn a lot either way!

You can also hire a real estate attorney off of UpWork or Fiverr to review the documents and give you an opinion just to be sure.

And it can work really well for you as long as you pay attention to the statute requirements.In order to defer all tax you are selling investment real estate and buying investment real estate of at least the same value you sold. 

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, he can be sued by the seller; anyone can sue for almost any real or imagined cause.