Perhaps the Lynnwood PD's Diversity Training is so intense that it causes officers not to notice such things, although apparently the perp was very good at projecting herself as a male, according to the article.
The family, however, were in constant, close contact with this person for A WHOLE YEAR and they apparently didn't catch on either, although other parts of the article suggest to me that they are breathtakingly stupid, completely morally corrupt or both.