Answer: Liquefaction takes place when loosely packed, water-logged sediments at or near the ground surface lose their strength in response to strong ground shaking. Liquefaction occurring beneath buildings and other structures can cause major damage during earthquakes. For example, the 1964 Niigata earthquake caused widespread liquefaction in Niigata, Japan which destroyed many buildings. Also, during the 1989 Loma Prieta, California earthquake, liquefaction of the soils and debris used to fill in a lagoon caused major subsidence, fracturing, and horizontal sliding of the ground surface in the Marina district in San Francisco.
For further information, see:
Earthquake Effects FAQ section
Soil Liquefaction Website - Univ. of Washington
California Geological Survey Seismic Hazards Maps
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U.S. Geological Survey