Is there a drum or a disk on the back of the transfer case?
As for no title, was the vehicle in his name? If so I would just go down to the licensing office. If not, I would check to see if it was reported stolen. No reason to get busted driving a stolen vehicle.
As for the axle swap you will need to modify the steering, drive lines and spring perches. I would give Trail Tough or Low Range a call to go over what all is needed. I wouldn't attempt the swap unless I had at least a $1000 sitting by to purchase random parts that will be needed.