Gemara

(Rav Amram - Beraisa #1): If the witnesses left two blank lines between the text and their signatures, it is invalid. If they left one blank line, it is valid.

(Rav): We are concerned for space only between the text and the witnesses, but even a large space between the witnesses and the Kiyum (validation of Beis Din) does not disqualify it.

Question: We are concerned for space between the text and the witnesses, lest the bearer add clauses (and the signatures will be underneath). We should also be concerned for space between the witnesses and the Kiyum, lest he write a document there, and the Kiyum of Beis Din will be underneath!

Answer: Rav allowed a space there only if it is smudged with ink (so nothing can be written there).

Question: Also between the text and the witnesses, a space smudged with ink should not disqualify a document!

Answer: We are concerned lest the witnesses signed under the smudge and did not intend to testify about the text.

Question: Likewise, we should be concerned lest Beis Din signed on the smudge!

Answer: Beis Din does not sign on a smudge.

Rishonim

The Rif brings the Gemara verbatim.

Nimukei Yosef (DH Omar ha'Mechaber): The concern lest witnesses signed on the smudge is that they testify that it was blotted out with ink in front of them. They do not want people to suspect that the bearer erased an unfavorable clause. If so, they do not testify about the document itself. Even if the area is filled with dots and nothing was erased and the whilte (parchment) can be seen between the dots, we are concerned lest they testify (only) about this. We discuss a document that does not say Sharir v'Kayam. However, Acharonim say that whenever a document can be forged through cutting, it is Pasul even if witnesses testify that nothing was added.

Rambam (Hilchos Malveh 27:4): If witnesses signed two lines below the text, the document is Pasul. If they were closer, it is Kosher. If they were further away and the space in between was filled with Pasul witnesses or relatives, it is Kosher, for it cannot be forged. If the space was filled with marks, it is Pasul, lest the witnesses signed on them, and not on the document itself.

Magid Mishneh: Even if witnesses come and testify about what was written above and that nothing was added. Anything done unlike Chachamim's enactment is not a document.

Beis Yosef (CM 45 DH v'Im): The Magid Mishneh holds that according to the Rambam, if the last line does not recap the document, it is Kosher, just we do not learn from the last line. There we do not need other witnesses. The document itself is Kosher, for there is no concern for forgery, just we do not learn from the last line. Here, the document itself is Pasul, until witnesses will testify to be Machshir it. If so, even if they testified, the document is unlike Chachamim enacted, and it is not a document.

Rosh (10:2): The Rashbam says that we disqualify a document with two lines between the text and the witnesses, even if witnesses say that nothing was added, for the document is unlike Chachamim enacted. The Sugya disqualifies any document that could be used to swindle, even if no fraud was done, for it is unlike Chachamim's enactment. We are concerned lest witnesses signed (only) on an ink smudge only when it is between the text and the signatures, like the concern lest witnesses signed on a greeting under the document (176a).

Poskim

Shulchan Aruch (CM 45:6): Witnesses must be meticulous not to distance their signatures two lines below the text. If they did so, the document is Pasul, even if it says Sharir v'Kayam, even if we know that nothing was added or forged.

Beis Yosef (DH v'Im): The Rosh disqualifies a document in which the last line does not recap the document (for it is unlike Chachamim's enactment). Even those who Machshir there, here they disqualify. Even if he wrote Sharir v'Kayam, perhaps he will cut off the old document and write a new document in the two lines.

Shach (12): The Beis Yosef did not need to mention his concern. In any case it is Pasul, for he can write what he wants in the line before the last. Even if the original document said Sharir v'Kayam, he can erase this and be Mekayem the erasure in the next to last line.

Tumim (6): The Beis Yosef is like Tosfos, who hold that an erasure in a place and of a size where it could have said Sharir v'Kayam, even three lines from the end, disqualifies. It would have been better to enact that a document with two blank lines is Kosher, so that witnesses need not be so precise, if not for the concern lest the bearer cut and write a new document.

Gra (13): This is like Tosfos and the Rosh. The Rashbam (162a DH Hirchik) is Machshir if it says Sharir v'Kayam.

Shulchan Aruch (ibid): Even if it was dirtied with ink (filled with dots of ink) it is Pasul, lest people say that they signed on the dots, and not on the document itself.

SMA (14): The concern is lest witnesses signed to testify that it was blotted out with ink in front of them, lest people suspect that the bearer erased an unfavorable clause. Even if the area is filled with dots and the white can be seen between the dots, we are concerned for this.

Rebuttal (Shach 13 and 46:86): The Shulchan Aruch discusses even when lines were written in the blank area (and it is clear that nothing was erased)! The Gemara says that we are concerned lest witnesses signed on the smudge. I.e. when they signed, an essential part of the document (e.g. a Tanai) was written there, and afterwards it was erased and smudged. Therefore, if there are only lines and it is clear that nothing was erased, it is Kosher. We disqualify a document with two blank lines, even though it would have been Kosher had they drewn lines there, because we see it in a way that allows forgery. In any case, it would have been Kosher had Pasul witnesses signed there! There is no concern lest Beis Din signed on the smudge, for they merely validate the signatures.

Shulchan Aruch (7): If witnesses distanced two lines it is Pasul to collect from Meshubadim, or from Bnei Chorin if the borrower says that he paid, but he cannot claim that he never borrowed.

SMA (15): Even if the document is Pasul because it could be forged, the witnesses testified that the matter was true. It is like a loan or sale with witnesses, without a document. One cannot deny that it happened.

Shach (14): A predated document is totally Pasul, and the borrower can deny that he ever borrowed. R. Yonah explains that here is different, for this could have been made Kosher had they filled the space with relatives or a recap of the document.

Tumim (8): This explains why the Rambam holds that a Get of divorce with two blank lines is Kosher if given in front of witnesses. We disqualify such a Get if it is Mezuyaf mi'Tocho (we would not recognize the Pesul), but not if it merely could be forged (and we know not to rely on the signatures).

Gra (15): Even if the document were lost and witnesses testified, the borrower could not deny that he ever borrowed. If he did, he would be established to be a denier. Here, there is testimony of witnesses (just it is not a Kosher document). Do not say that the testimony is (Pasul, for it is not oral, rather,) written. Their signatures were not disqualified, for if the space were filled with relatives, the document is Kosher.