I’m sorry you are having difficulties. This is a rough time for many of us. Generally, there is not any long term benefit to defaulting on a loan and allowing foreclosure proceedings. Your question is common in that sense. It will wreck you credit and could set you back decades. I would not trust anyone who advises you otherwise. On the other hand, it happens to lots of good people.

You mention that this is a rental house loan this suggests that you are asking about commercial income producing property. Also, you mention homesteading your primary residence which gives the impression that there are two properties that you are asking about.

Homestead exemptions vary widely by jurisdiction because each state constitution or statutory law is different. Your local statute will lay out the steps that need to be taken and requirements for claiming the exemption.

Without knowing more detail it is hard to discuss the topic. However, the Federal Trade Commission is a good source to research and gain more information that may be applicable to your situation. It would be a good idea to read the information here: http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm

There are lots of options including selling the home, loan modification, forbearance, bankruptcy, and others. The right fit will depend on the details of you particular circumstance. Workouts are becoming common and I know several real estate attorneys that have shifted their areas of practice to this area of the law. Hope that helps get you started.

Feel free to post again if you want to you discuss anything further.