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Do you know whether the niece is planning to start paying back the capital or not?
Does your mother have someone acting under a power of attorney for her?
The niece is in breach of her agreement with your mother. You can sue her on you mother's behalf while acting under the POA. I suggest that you do so now as it may end up being too later after your mother dies and it also may be the case that they will argue that your mother let this go so she was not going to enforce the agreement.
If you don't sue now you can sue on behalf of the estate.
But you cannot deduct what your niece owes from your brother's portion of his inheritance as there is no lawful ground for doing unless the agreement is really with your brother and not his daughter. If your brother does owe funds to the estate then it can be deducted from what he is to inherit.
The concern again is that he will say that if that is what your mother wanted to see happen she would have put that in the Will so in my view this should be dealt with now.