After several frustrating hours of fiddling with settings and browsings pages and pages of forums ... I found this tip buried in one from a few years ago. If you are placing a downloaded blueprint and get the "terrain modification failed" error code, Press and hold shift while dragging your mouse down. It will enable you to move the blueprint up an down vertically, allowing proper alignment with the ground and making terrain modification successful. Just ensure you're not too close to any paths, and you're golden. I almost cried with relief the first time I tried this and it actually worked.