I have a client that currently has 20+ mailboxes hosted by an external provider and 20+ hosted in M365. The mx records for the domain currently do not route to Outlook, and email forwarders have been placed on the external provider to forward email to the 20+ M365 Hosted mailboxes, i.e. forwarders to the email@example.com.
The MS tenant has had the email domain added as a custom domain. So the M365 hosted email addresses can email out with the correct domain.
So my question is, if the M365 hosted email users attempt to email to the external email(that use the same mail domain) does Exchange check the Mx records of the domain if it cannot find the user listed within the tenant, and route the email accordingly? or will the email stay within the tenant and eventually return an error.