This error also happens with simpler shapes sometimes, although I can reliably get it to happen with more complex poly-shape's around 50-70% of the time.
Attatched screenshot showing the error from Terrain Builder.
This picture shows the outline you are left with after this error occurs and then selecting with the selection tool:
http://imageshack.com/a/img911/7033/jAIaFr.png
These are examples or more complex shapes that do work as expected:
http://imageshack.com/a/img907/6730/2l6lRl.png
http://imageshack.com/a/img912/8945/R2lIIo.png