update #2**** Ok so it appears that once you make any changes in retroarch and save it. It stops looking in the overlay folder. I added the following to the save cfg file and it worked as expected.
video_fullscreen_x = "1440"
video_fullscreen_x = "900"
custom_viewport_x = "550"
custom_viewport_y = "0"
custom_viewport_width = "820"
custom_viewport_height = "1079"
input_overlay = "/recalbox/share/overlays/mame/16-9/pandoras_overlay.cfg"
