Transfer case red Neutral light will not go out, jeep drives normally

I would first check for any "chassis" C diagnostic trouble codes that may be set due to the concern. This may give you clues as to what is going on. Seems to me that something isn't quite right with that sensor you speak of. If you removed it and reinstalled it and got a different -- equally faulty --- result, then I feel like it needs further troubleshooting. If you're talking about that kind of triangular shaped mode sensor, keep in mind that it must be properly indexed by aligning the arrow on the encoder shaft with the alignment mark -- as well as the dowel on the encoder to the hole in the case. www.repairpal.com/repair-shops