Also i heard people with blown fuse under the hood to loose fuse or maybe the encoder motor and from what ive been reading kind of sounds like its your encoder motor? But i could be wrong. Might be cheaper to get it scanned at a shop than buying part after part to find the problem. Good Luck.
I found this hopefully it helps.
B2725 - Active Transfer Case Mode Switch Malfunction
http://www.gmtruckhq.com/images/dtc/B2725/B2725_SC.gif
Schematic
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Circuit Description...
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