Probably the encoder motor, or do you have the stick in the floor for the t-case?
Also how many miles are on the truck?
Look for the pump rub hole on the t-case, it is a common problem.
I see you have the 2007 model, is it the NBS or the classic?
I will be out of town starting in 30 min. until Sunday, so if you need any help with this, I can get you going in the right direction, I have some knowledge of those New Process 261-263 Transfer cases.........
2006 1500 CC/SB with the 5.3L and Nelson PCM.
soon to come is a intake and exhaust. (wifes truck)
Other vehicle is a 03 2500HD CC/SB 6.6L DMAX straight piped and Edge stacked with Superchips and gauges, Loves to eat rice for sure! Fartcan exhaust makes it better!