65hp 85 mercury TnT problems

[seasquirtii]

I bought a 85 Sea squirt II and have redone the wood, replaced the power pack and some other stuff. Last week I had its 1st sea trial and all was well until I got back to the ramp. Tilt would not raise the engine. After some trouble shooting when I got it home I started to remove the elect motor and found oil up in the armature. Started to remove the lift pistons and oil was milky, guessing has water in it. Removed everything so I can use the boat and will tackle in the winter. Are there any alternatives to orig system that I can replace it that anyone has done. The serial number on engine sticker is worn off, is it stamped any where that I can be sure of what I have? Is there a rebuild that works and won't put me in the poor house?

Thanks in advance any info will be appreciated.