I didn't lose much Lean body mass (LBM). I was in the same boat as you. Not lifting for like 7 years, had 3 kids, got up to 205 lbs.
After 6 months of dieting I lost 25 lbs, but there was some platues in there. Further, I made constant strength gains the whole time.
BTW the diet at first HURTS, but once you get used to it you drop fat off. 3-4 lbs per week at first easy. Just eat a normal viariet of foods, NO SODA pop. I am a sugar freak so that held me back a bit. I ate about 100+ g of protein per day is all.
PS there is a huge difference between 35% and 26% BF.
I owuld say drop some fat then hit the juice and build up without gaining fat. Start today. Use livestrong.com to track calories, VERY important.