I suggest you not answer their demand letter.
You didn't owe them, why pay them?
There is no legal requirement for you communicate with them.
Secondly, you're in a position where a bankruptcy filing might help you. I suggest you discuss your options with a couple of bankruptcy attorneys. Your initial cinversation will be free.
They've taken your home. They have ruined your credit. Bsnkruptcy was created to give people a second chance. You've tried everything else, and what did that get you? Discuss a bankruptcy filing with a couple of local attorneys. Get yourself a new beginning.
Whatever you do, don't reply to those unsolicited letters. Those are meant only to further entangle and entrap you. Throw those damn things away, unopened. Remember what happened when Pandora opened that box?