Welcome Gtbp90
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Did you have to undo the shift linkage to drop the lower unit? I think it's a slide off and slide on job.
Sounds like you need to shift into gear to extend the shift lever. I thought the shift lever was a threaded coupler?? with a locking nut on both ends.(see a parts diagram) Not sure if this works but look up a diagram for your motor. http://www.**********/parts/search/Merc/Force/1986/H0507X86A/parts.html