The cops were hooked first.

In time, the house on Carolina Street in Gary, Indiana, would become internationally famous as a "portal to hell" where Latoya Ammons and her three children were possessed by demons. But, in the beginning, it was the local police department's guilty fascination. So many officers were driving past to check it out that the house owner, Charles Reed, called to complain that they were scaring his new tenants.

That changed on January 26, when the Indianapolis Star published Marisa Kwiatkowski's story about the strange happenings inside, complete with a levitating girl, a boy walking on the ceiling, demonic voices, phantom footprints, an altar in the basement and a series of exorcisms. Within a couple of days it had become the paranormal story of the year, a Hollywood movie in waiting, retold all over the world.

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The article was rigorously reported. Kwiatkowski pored over police reports, doctor's notes and records from the Department of Child Services (DCS). She spoke to detectives, social workers, child psychologists, a Catholic priest and the Ammons family themselves, to see if their incredible tale stacked up. Most importantly, she found independent witnesses: a police captain, a nurse, and two DCS case-workers who also felt the presence of evil spirits.

"The idea of an exorcism or a family saying that they've experienced a demonic possession is not that unusual," Kwiatkowski says. "But to have people in official positions who believe that it did indeed happen and that they witnessed strange things as well is unique."

The cast of characters is straight out of a horror script. There is the veteran police officer, Captain Charles Austin, whose initial scepticism turned to terror when he inspected the house, he told the Mail: "Every one of us who was there that day in the basement and who saw what we saw, we all call it the same: that bit of dirt is a portal to hell."

In police photographs documenting the visit, there are ghostly green and white apparitions and, on the audio tape, a spectral voice can be heard whispering "hey" in the background.

Catholic Priest Father Mike Maginot set out to disprove the haunting but ended up so convinced it was real he requested official permission to perform an exorcism. At his church in Merrillville, just south of Gary, he castigated the demons, in English and in Latin - "I cast you out, unclean spirit, along with every Satanic power of the enemy" - pressing a crucifix against the forehead of Latoya Ammons. In the house, he sprinkled holy water in every room and spread salt beneath the stairs.

Social worker Valerie Washington said she saw Ammons's middle child, a nine-year-old boy, glide backwards up a wall, do a somersault over his grandmother and land on his feet. Nurse Willie Lee Walker, who was also present, corroborated her story. "He walked up the wall, flipped over her and stood there," he told Kwiatkowski. "There's no way he could've done that." Both immediately ran from the room.

Washington, spooked, handed the case over to her colleague Samantha Ilic. When Ilic visited the house and touched some strange liquid dripping in the basement, her finger turned deathly white. In the next month, she had a series of freak accidents, suffering three broken ribs, a broken ankle, a broken hand and third-degree burns.

The story is not without its sceptics. Ammons claimed to have seen her daughter hovering in the air over her bed late at night. After interviewing the youngest boy, clinical psychologist Stacy Wright wrote: "This appears to be an unfortunate and sad case of a child who has been induced into a delusional system perpetuated by his mother." The DCS was concerned enough about the children's regular absences from school to take them into custody.

This is how most exorcism stories in the newspapers end, with a family separated, a parent committed to a mental institution or a child dead. A few days before the Ammons story broke, a mother in Maryland was charged with first-degree murder after admitting that she stabbed her two youngest children, believing they were possessed by demons. Zakieya Avery told the court in Montgomery County that she was the commander of a "Demon Assassin" cult and had been called to hunt evil spirits.

In this respect the case in Gary is unusual: it has a happy ending. After moving house and undergoing three exorcisms, the family's nightmare came to an end. "No demonic presences or spirits in the home," wrote DCS case manager Christina Olejnik. Ammons was reunited with her children.

Last year, a survey conducted by Public Policy Polling found that 63% of young Americans aged between 18 and 29 believe in the existence of demons that can take control of human beings. In another poll, from YouGov, 57% of respondents said they believe in the devil while 51% said that people can be possessed by Satan "or some other evil spirit".

The Reverend Bob Larson runs the International School of Exorcism in Denver, Colorado.

"The belief in it, the acceptance of it, is growing extraordinarily," he says. "Twenty years ago it was a subject that could hardly be discussed," says Larson. "Now you have cases like the one in ­Indiana and others where people feel more free to talk about it." Larson claims to have personally performed more than 20,000 exorcisms.

On his website, there are videos of his most dramatic interventions. In many of them, those who have come to him for help grunt and growl in demonic voices worthy of Linda Blair in The Exorcist as they recount childhood trauma. Beneath the gospel fervour, behind the crucifix, Larson often resembles a psychiatrist leading a particularly cathartic group therapy session, even as he exhorts Jesus Christ to drive out the demons.

He said: "There are elements of everything that you see in a Hollywood exorcism. But most of it is about healing work with the individual, bringing them to a place where they deal with their own internalised issues connected with the exorcism and then actually expelling the spirit."

Larson is sceptical about what really happened at the house in Gary - "I'm not convinced of the credibility of the people involved" - but wishes the family had called him.

"When you have this kid walking backwards up a wall and possibly on the ceiling, you really have a contravention of the physical laws of the universe in a very unique way," he said. "I've seen levitations and various materialisations and dematerialisations. They're not something that's common in an exorcism. Hollywood might make you think so, but that's pretty rare."

In recent years, there has been a surge in the number of films about demonic possession, thanks to the runaway success of the Paranormal Activity franchise. The first in the series, about a couple who set up cameras in their home to capture the spirits haunting them, is the most profitable film of all time, in terms of return on initial investment: it cost around $15,000 to make, was acquired by Paramount for $350,000 and made almost $200 million at the box office.

So far there have been three sequels, all hugely lucrative. A spin-off, Paranormal Activity: The Marked Ones, opened on New Year's Day and grossed $18.2m in its first weekend - comparatively disappointing sales which still mean, with a $5m budget, the studio is making a killing.

There have been suggestions that Ammons devised an elaborate hoax in the hope of selling her story. On Fox News, Bill O'Reilly stated that "Latoya Ammons and her family concocted an elaborate tale of demon possessions and supernatural occurrences as a way to make money", but in the interview that followed, he couldn't persuade Father Maginot that he had been hoodwinked.

Ammons granted an interview to the syndicated news magazine, Inside Edition, but so far has turned down all other offers. She told Kwiatkowski that she has been approached by CNN, The Dr Oz Show and various movie producers. Whether she made it all up or not, she stands to make serious money.

On Thursday, it was announced that the house had been sold to Zak Bagans, the host of a cable TV show called Ghost Adventures. The price he paid, $35,000, was only a little over market rate for Gary, a poor post-industrial part of Chicago's outer suburbs that has lost more than half its population since the 1960s. Bagans plans to install cameras all over the house and stay there overnight. "If it's true this home is a portal to hell, then I want to go there and see what happens," he says.

The tale, based on a true story, is coming to a screen near you. As to whether she buys it, Kwiatkowski is professionally tight-lipped. "I am paid to report the facts and I leave the believing or not believing to the readers," she says.