Thank you for the responses, and the links Eric. When I change the slab parameters barthmv, it does indeed fill the gap. If I create a slab that's 3", there remains a 1" gap between the slab and the bottom of the walls.
I erased the slab and used the Build Foundation function as you suggested Eric to create a 4" slab foundation, and after doing that, it created a 4" slab + 4" stem wall which pushed the building up 4 more inches from the terrain base. If I remove the foundation, the walls stay floating 8" above the terrain. There is a parameter somewhere that is setting the distance from "floor 0" or the terrain base to the bottom of the walls.