Assalamualaikum warahmatullahi wabarakatuhu.
I borrowed a certain amount from someone in emergency situation and we mutually agreed to return in a few months. Just recently I came to know he died due to health concerns. Now how am I suppose to clear this debt as he has no legal heirs. Can I give this as charity on behalf of him? Can I give it to my needy and poor relatives - or will it be any kind of favoritism? Or I should give it in building masjids and madrasa in my home country as ongoing charity?
JazakAllahu khayran

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.

If the creditor passed away and did not leave any heir, then you have to give the debt in charity on his behalf. Fataawa Qaadhi Khaan reads: “A man died and did not leave any heirs, and someone owed him money. They (scholars) said that the debtor should give the debt he owed the deceased (creditor) in charity on his behalf to be reserved for him with Allah, The Almighty, and Allah would recompense his opponent (the creditor) with it on the Day of Resurrection.” [End of quote]

It is permissible to spend this money in the public interest of Muslims such as building mosques and schools, whether it is spent in the creditor’s country or in your country. It is also permissible for you to give this money to your poor relatives provided that no favoritism is involved. Shaykh Ibn ‘Uthaymeen, may Allaah have mercy upon him, in Ash-Sharh Al-Mumti‘, while commenting on the author’s statement, “If he (usurper) does not know the rightful owner (of the usurped object), he should spend it in charity on behalf of its owner while guaranteeing to give it to its owner if he shows up and demands it (and does not approve of giving it in charity),” He said: “If it happens that he has needy relatives, is it permissible to give them this money? The answer is, yes, it is permissible to give them this money. However, it is impermissible to favor them over others (non-relatives) who are in more need of it. But if his relatives need that money as much as others or more, then there is nothing wrong with giving it to them.” [End of quote]

Allah Knows best.