The top of the stairs fail to connect to the 1st floor. If you right click on the stairs and select auto connection you get an error message.
I eventually figured the issue out. Yes, I had the terrain defined incorrectly.
I used a terrain region and set it as the floor for the lower patio. After watching a few videos on pools, I eventually figured out I need to instead use the terrain feature, and set the height to the -96; e.g. the floor of the basement patio.
Now just to figure out why it is complaining about my knee wall and why my retaining walls do not extend downward.