If PTE17 and PTE16 are the pins that go to the level converter on the serial board, you MUST use UART2 as that is the only UART that can be routed to those pins.
If you look at the "K70 Signal Multiplexing and Pin Assignments" chart, you will see that only UART2 ,PRC mux setting 3, can be used on those pins.
The mistake, if there is one, is that the schematic may have led to believe that it was UART1 of the chip, when in fact they probably meant "the first UART we are connecting".
The Freedom board schematic misled me in a similar manner by referring to UART1, when in fact it was connected to the pins for UART0.