Will transit through another Schengen country to a country that allows visa-free stay cause overstaying Schengen?
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Note: this answer applies only to citizens of countries who do not need a (Type C) Schengen Visa to enter the Schengen Area and are allowed to apply for a residence permit inside the country in question.
For the time starting at the residence permit application, your stay is based on that countries national law (the Schengen 90 day rule does not apply during that period while inside that country).
I entered before this country was Schengen, ...
If Croatia (assumed based on a comment made elsewhere) is the country in question and you entered before the 1st of January 2023, then the time in Croatia before the 1st of January also does not count (you left, what was then, the Schengen Area).
If you applied for the residence permit on the 15th of December 2022, then the time after the 1st of January 2023 also does not count since you were in Croatia under national law when Croatia became part of the Schengen Area.
Also, if you entered Croatia on the 1st of December 2022 and was granted the standard Croatian 90 days in Croatia, that period would end around the 1st of March. You would then have a Schengen exit stamp and a Croatian national entry stamp. The last day that counts for the Schengen 90 days would be the date of the Schengen exit stamp.
This country has a law allowing me to stay indefinitely while the application is in process.
The date of that application will be used as the 'exit' stamp replacement, the date upon entry to another Schengen country will be the new 'entry' stamp date (assuming that anyone makes the effort to check) for the day count calculation.
When that result is under 90 days, then it will not be considered an overstay.
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Source: stackoverflow.com
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