The foliage paint tool does not work on landscapes that have collision different than “Block All” , however in my project my landscape has custom collison channel, thus if I want to place/change any foliage I have to change the collision settings.
It is very annoying.
It appears that this issue has been fixed in an internal build of the engine. Having “Block” enabled on the Object Response > WorldStatic option allows the foliage to be painted in this internal build.