My sister and I own a number of rent houses together. Due to different ideas about management we cannot get along anymore so I am selling her my half interest. Talking to the bank now who holds the mortgage, they are asking me to give up my rights to seek any damages that i think might be mine due to mismanagent. Is this legal for a bank to do this?

I am unsure what you are asking, based on the question and the thread title.

The bank may release you from liability on the note. But if you are paying your sister separately, the bank can certainly refuse to release you from the loan as they receive no consideration.

If the bank is asking you to give up separate rights you may have against your sister that involve the property, but not necessarily the loan, no, that isn't advice they should give.

Complete whatever transfer you do through your attorney to best protect your interests.