SFTP fatal bad ownership or modes for chroot directory ubuntu 12.04

sshd has a certain level of paranoia when it comes to chroot directories. I do not think this can be disabled (even with StrictModes no). The chroot directory and all parent directories must be properly set:

1. The chroot directory and all of its parents must not have group or world write capabilities (ie chmod 755)
2. The chroot directory and all of its parents must be owned by root.

In your case the login error can be fixed with chmod 755 /home/DUMP Your apparent intent to have a world-writable directory that sftpuser can log into and everyone can put files in can be solved by making that directory a subdirectory of /home/DUMP/