You should definitely consult an attorney on how to proceed. I would highly suggest you work with the lender to avoid foreclosure. There are options, you just need to establish communication. I have worked with an attorney who has helped some of my clients out of this jamb with a short sale agreement. Nonetheless, foreclosure should be the least desired solution as the consequences to your credit live for a long time, affecting your future ability to finance anything.

A short sale is an eventuality for some properties. When what the market will yield for a property is not sufficient to payoff the amount due at a closing, a short sale may be the solution. The bank may agree to take less than is owed in order to avoid foreclosure proceedings. In my experience, the outcome is usually much more positive for all parties.

In any event, before you let the property just slip away, you should consult with an attorney who specializes in the process and can help you navigate your way to the best outcome.

This is a better question for a Illinois Foreclosure Attorney, but as a Illinois Realtor I have the exact scenario going on. The owners have their residence and their investment property is being foreclosed on. Their experienced Attorney says they may get a deficiency judgement or lein on their other property. We are trying to beat all this with a short sale and are waiting for an answer from the bank.
Your question seems simple, but the complexity of the laws should steer you to proper and timely legal advice.

Your credit will be severely damaged which will likely make it difficult to refinance the remaining property or purchase anything new for up to several years. The lender on the defaulting mortgage may go after you personally for monies owed and could potentially lein your remaining home if they obtain a judgement against you for any shortfall.

Note: this is not legal advice and any decision you make should include professional counsel in the foreclosure area. If you wish to have the name of an attorney please let me know.