diff --git a/spring-integration-file/src/main/java/org/springframework/integration/file/AbstractInboundRemoteFileSystemSynchronizingMessageSource.java b/spring-integration-file/src/main/java/org/springframework/integration/file/AbstractInboundRemoteFileSystemSynchronizingMessageSource.java
index e3e9af69c9..0c908a29dc 100644
--- a/spring-integration-file/src/main/java/org/springframework/integration/file/AbstractInboundRemoteFileSystemSynchronizingMessageSource.java
+++ b/spring-integration-file/src/main/java/org/springframework/integration/file/AbstractInboundRemoteFileSystemSynchronizingMessageSource.java
@@ -9,6 +9,7 @@ import org.springframework.integration.endpoint.MessageProducerSupport;
 import org.springframework.integration.file.entries.*;
 
 import java.io.File;
+import java.io.FileNotFoundException;
 import java.util.Arrays;
 import java.util.regex.Pattern;
 
@@ -92,10 +93,14 @@ public abstract class AbstractInboundRemoteFileSystemSynchronizingMessageSource<
                 this.synchronizer.setFilter(this.remotePredicate);
             }
 
-            if (this.autoCreateDirectories) {
-                if ((this.localDirectory != null) && !this.localDirectory.exists() && this.localDirectory.getFile().mkdirs())
-                    logger.debug("the localDirectory " + this.localDirectory + " doesn't exist");
-            }
+    		if (this.localDirectory != null && !this.localDirectory.exists()){
+    			if (this.autoCreateDirectories){
+    				logger.debug("The '" + localDirectory + "' directory doesn't exist. Creating " + this.localDirectory);
+    				this.localDirectory.getFile().mkdirs();
+    			} else {
+    				throw new FileNotFoundException(localDirectory.getFilename());
+    			}
+    		}
 
             /**
              * Handles making sure the remote files get here in one piece
@@ -118,7 +123,7 @@ public abstract class AbstractInboundRemoteFileSystemSynchronizingMessageSource<
 			if (e instanceof RuntimeException){
 				throw (RuntimeException)e;
 			} else {
-				throw new MessagingException("Failure during initialization of " + this.getComponentName(), e);
+				throw new MessagingException("Failure during initialization of MessageSource for: " + this.getComponentType(), e);
 			}
 		}
         
diff --git a/spring-integration-sftp/.project b/spring-integration-sftp/.project
index e92ee4a1ac..baeb3bf435 100644
--- a/spring-integration-sftp/.project
+++ b/spring-integration-sftp/.project
@@ -15,8 +15,14 @@
 			<arguments>
 			</arguments>
 		</buildCommand>
+		<buildCommand>
+			<name>org.springframework.ide.eclipse.core.springbuilder</name>
+			<arguments>
+			</arguments>
+		</buildCommand>
 	</buildSpec>
 	<natures>
+		<nature>org.springframework.ide.eclipse.core.springnature</nature>
 		<nature>org.maven.ide.eclipse.maven2Nature</nature>
 		<nature>org.eclipse.jdt.core.javanature</nature>
 	</natures>
diff --git a/spring-integration-sftp/pom.xml b/spring-integration-sftp/pom.xml
index e51907f177..6c3c6a6df3 100644
--- a/spring-integration-sftp/pom.xml
+++ b/spring-integration-sftp/pom.xml
@@ -85,5 +85,9 @@
 			<artifactId>commons-io</artifactId>
 			<version>1.4</version>
 		</dependency>
+		<dependency>
+			<groupId>org.mockito</groupId>
+			<artifactId>mockito-all</artifactId>
+		</dependency>
 	</dependencies>
 </project>
diff --git a/spring-integration-sftp/src/main/resources/org/springframework/integration/sftp/config/spring-integration-sftp-2.0.xsd b/spring-integration-sftp/src/main/resources/org/springframework/integration/sftp/config/spring-integration-sftp-2.0.xsd
index 9a6ca08ef9..2fc8aa5baa 100644
--- a/spring-integration-sftp/src/main/resources/org/springframework/integration/sftp/config/spring-integration-sftp-2.0.xsd
+++ b/spring-integration-sftp/src/main/resources/org/springframework/integration/sftp/config/spring-integration-sftp-2.0.xsd
@@ -97,7 +97,7 @@
 				<xsd:annotation>
 					<xsd:appinfo>
 						<tool:annotation kind="ref">
-							<tool:expected-type type="org.springframework.integration.ftp.FtpFileListFilter"/>
+							<tool:expected-type type="org.springframework.integration.file.entries.EntryListFilter"/>
 						</tool:annotation>
 					</xsd:appinfo>
 				</xsd:annotation>
diff --git a/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all-fail.xml b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all-fail.xml
new file mode 100644
index 0000000000..1c1d0a9c22
--- /dev/null
+++ b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all-fail.xml
@@ -0,0 +1,44 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<beans:beans
+		xmlns="http://www.springframework.org/schema/integration"
+		xmlns:beans="http://www.springframework.org/schema/beans"
+		xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
+		xmlns:p="http://www.springframework.org/schema/p"
+		xmlns:context="http://www.springframework.org/schema/context"
+		xmlns:util="http://www.springframework.org/schema/util"
+		xmlns:tool="http://www.springframework.org/schema/tool"
+		xmlns:lang="http://www.springframework.org/schema/lang"
+		xmlns:sftp="http://www.springframework.org/schema/integration/sftp"
+		xsi:schemaLocation="http://www.springframework.org/schema/beans http://www.springframework.org/schema/beans/spring-beans.xsd
+						http://www.springframework.org/schema/integration http://www.springframework.org/schema/integration/spring-integration-2.0.xsd
+					 	http://www.springframework.org/schema/context http://www.springframework.org/schema/context/spring-context-3.0.xsd
+                        http://www.springframework.org/schema/util http://www.springframework.org/schema/util/spring-util-3.0.xsd
+						http://www.springframework.org/schema/tool http://www.springframework.org/schema/tool/spring-tool-3.0.xsd
+						http://www.springframework.org/schema/lang http://www.springframework.org/schema/lang/spring-lang-3.0.xsd
+						http://www.springframework.org/schema/integration/sftp http://www.springframework.org/schema/integration/sftp/spring-integration-sftp-2.0.xsd">
+
+
+	<channel id="requestChannel"/>
+	
+	<sftp:inbound-channel-adapter id="sftpAdapterNoAutoCreate"
+			channel="requestChannel"
+			filter="filter"
+			filename-pattern="foo*.txt"
+			username="oleg"
+			remote-directory="ftp://foo"
+			local-directory-path="file:target/bar"
+			host="localhost"
+			password="hello"
+			port="1234"
+			key-file="ker.txt"
+			key-file-password="hello"
+			auto-create-directories="false"
+			auto-delete-remote-files-on-sync="false">
+		<poller fixed-rate="1000"/>
+	</sftp:inbound-channel-adapter>
+	
+	<beans:bean id="filter" class="org.mockito.Mockito" factory-method="mock">
+		<beans:constructor-arg value="org.springframework.integration.file.entries.EntryListFilter"/>
+	</beans:bean>
+
+</beans:beans>
diff --git a/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all.xml b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all.xml
new file mode 100644
index 0000000000..5bf980fd50
--- /dev/null
+++ b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests-inbound-all.xml
@@ -0,0 +1,62 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<beans:beans
+		xmlns="http://www.springframework.org/schema/integration"
+		xmlns:beans="http://www.springframework.org/schema/beans"
+		xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
+		xmlns:p="http://www.springframework.org/schema/p"
+		xmlns:context="http://www.springframework.org/schema/context"
+		xmlns:util="http://www.springframework.org/schema/util"
+		xmlns:tool="http://www.springframework.org/schema/tool"
+		xmlns:lang="http://www.springframework.org/schema/lang"
+		xmlns:sftp="http://www.springframework.org/schema/integration/sftp"
+		xsi:schemaLocation="http://www.springframework.org/schema/beans http://www.springframework.org/schema/beans/spring-beans.xsd
+						http://www.springframework.org/schema/integration http://www.springframework.org/schema/integration/spring-integration-2.0.xsd
+					 	http://www.springframework.org/schema/context http://www.springframework.org/schema/context/spring-context-3.0.xsd
+                        http://www.springframework.org/schema/util http://www.springframework.org/schema/util/spring-util-3.0.xsd
+						http://www.springframework.org/schema/tool http://www.springframework.org/schema/tool/spring-tool-3.0.xsd
+						http://www.springframework.org/schema/lang http://www.springframework.org/schema/lang/spring-lang-3.0.xsd
+						http://www.springframework.org/schema/integration/sftp http://www.springframework.org/schema/integration/sftp/spring-integration-sftp-2.0.xsd">
+
+
+	<channel id="requestChannel"/>
+
+
+	<sftp:inbound-channel-adapter id="sftpAdapterAutoCreate"
+			channel="requestChannel"
+			filter="filter"
+			filename-pattern="foo*.txt"
+			username="oleg"
+			remote-directory="ftp://foo"
+			local-directory-path="file:target/foo"
+			host="localhost"
+			password="hello"
+			port="1234"
+			key-file="ker.txt"
+			key-file-password="hello"
+			auto-create-directories="true"
+			auto-delete-remote-files-on-sync="false">
+		<poller fixed-rate="1000"/>
+	</sftp:inbound-channel-adapter>
+	<sftp:inbound-channel-adapter id="sftpAdapter"
+			channel="requestChannel"
+			filter="filter"
+			filename-pattern="foo*.txt"
+			username="oleg"
+			remote-directory="ftp://foo"
+			local-directory-path="file:target"
+			host="localhost"
+			password="hello"
+			port="1234"
+			key-file="ker.txt"
+			key-file-password="hello"
+			auto-create-directories="true"
+			auto-delete-remote-files-on-sync="false">
+		<poller fixed-rate="1000"/>
+	</sftp:inbound-channel-adapter>
+	
+	
+	<beans:bean id="filter" class="org.mockito.Mockito" factory-method="mock">
+		<beans:constructor-arg value="org.springframework.integration.file.entries.EntryListFilter"/>
+	</beans:bean>
+
+</beans:beans>
diff --git a/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests.java b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests.java
new file mode 100644
index 0000000000..832ba8e4ed
--- /dev/null
+++ b/spring-integration-sftp/src/test/java/org/springframework/integration/sftp/SftpParserTests.java
@@ -0,0 +1,63 @@
+/*
+ * Copyright 2002-2010 the original author or authors.
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+package org.springframework.integration.sftp;
+
+import static junit.framework.Assert.assertTrue;
+
+import java.io.File;
+
+import org.junit.After;
+import org.junit.Before;
+import org.junit.Test;
+import org.springframework.beans.factory.BeanCreationException;
+import org.springframework.context.ApplicationContext;
+import org.springframework.context.support.ClassPathXmlApplicationContext;
+
+/**
+ * @author Oleg Zhurakousky
+ *
+ */
+public class SftpParserTests {
+	
+	@Before
+	public void prepare(){
+		new File("target/foo").delete();
+	}
+
+	@Test
+	public void testLocalFilesAutoCreationTrue() throws Exception{
+		assertTrue(!new File("target/foo").exists());
+		new ClassPathXmlApplicationContext("SftpParserTests-inbound-all.xml", this.getClass());
+		assertTrue(new File("target/foo").exists());
+		assertTrue(!new File("target/bar").exists());
+	}
+	@Test(expected=BeanCreationException.class)
+	public void testLocalFilesAutoCreationFalse() throws Exception{
+		assertTrue(!new File("target/bar").exists());
+		new ClassPathXmlApplicationContext("SftpParserTests-inbound-all-fail.xml", this.getClass());
+	}
+	@Test
+	public void testLocalFilesAreFound() throws Exception{
+		assertTrue(new File("target").exists());
+		new ClassPathXmlApplicationContext("SftpParserTests-inbound-all.xml", this.getClass());
+		assertTrue(new File("target").exists());
+	}
+	
+	@After
+	public void cleanUp() throws Exception{
+		new File("target/foo").delete();
+	}
+}