**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(MARK
      ONE)





**[X]  QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended June 30, 2007





**Or**





**[   ]  TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934**





Transition
      Period From _______ To ________





*COMMISSION
      FILE NUMBER 333-125347*





**VESTIN
                REALTY MORTGAGE I, INC.**(Exact
                name of registrant as specified in its
                charter)








MARYLAND
            
            20-4028839(State
                or Other Jurisdiction of
            
            (I.R.S.
                EmployerIncorporation
                or Organization)
            
            Identification
                No.)





**8379
      WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113**


(Address
      of Principal Executive Offices)****(Zip
      Code)





Registrant’s
      Telephone Number: 702.227.0965





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes  [X]    No   [   ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.  (Check one):





Large
                accelerated filer [   ]
            Accelerated
                filer [X]
            Non-accelerated
                filer [   ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act).





Yes  [   ]    No   [X]





As
      of
      August 6, 2007, there were 6,872,114 shares of the Company’s Common Stock
      outstanding.








*Table
          of Contents*


**TABLE
      OF CONTENTS**





**Page**Part
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Consolidated
                Financial StatementsConsolidated
                Balance Sheets as of June 30, 2007 (unaudited) and
                December 31, 2006
            1Consolidated
                Statements of Operations (unaudited) for the Three
                and Six Months Ended June 30, 2007 and 2006
            2Consolidated
                Statements of Equity and Other Comprehensive
                Income (unaudited) for the Six Months Ended June 30,
                2007
            3Consolidated
                Statements of Cash Flows (unaudited) for the
                Six Months Ended June 30, 2007 and 2006
            4Notes
                to Consolidated Financial Statements
                (unaudited)
            6Report
                of Independent Registered Public Accounting
                Firm
            26Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            27Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            36Item
                4.
            Control
                and Procedures
            37Item
                4T
            Controls
                and Procedures
            37Part
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            38Item
                1A.
            Risk
                Factors
            38Item
                2.
            Unregistered
                Sales of Equity – Securities and Use of
                Proceeds
            49Item
                3.
            Defaults
                Upon Senior Securities
            49Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            49Item
                5.
            Other
                Information
            49Item
                6.
            Exhibits
            50SIGNATURES
            51Exhibit
                31.1Exhibit
                31.2Exhibit
                32








*Table
          of Contents*


**PART
      I - FINANCIAL INFORMATION**





**ITEM
                1.**
            **CONSOLIDATED
                FINANCIAL STATEMENTS**





**VESTIN
                REALTYMORTGAGE I, INC.****CONSOLIDATED
                BALANCE SHEETS****ASSETS****June
                30, 2007**
            
            
            **December
                31, 2006****(Unaudited)**AssetsCash
            
            $
            1,869,000
            
            
            $
            1,523,000Certificates
                of deposit
            
            
            --
            
            
            
            150,000Investment
                in marketable securities - related party
            
            
            3,129,000
            
            
            
            1,953,000Interest
                and other receivables
            
            
            896,000
            
            
            
            938,000Notes
                receivable, net of allowance of $621,000 at June 30, 2007 and $885,000
                at
                December 31, 2006
            
            
            94,000
            
            
            
            102,000Real
                estate held for sale
            
            
            3,316,000
            
            
            
            3,689,000Real
                estate held for sale - seller financed
            
            
            7,911,000
            
            
            
            7,911,000Investment
                in real estate loans, net of allowance for loan losses of $4,396,000
                at
                June 30, 2007 and $4,534,000 at December 31, 2006
            
            
            47,247,000
            
            
            
            48,631,000Assets
                under secured borrowings
            
            
            --
            
            
            
            310,000Due
                from related parties
            
            
            --
            
            
            
            1,000Other
                assets
            
            
            198,000
            
            
            
            124,000Total
                assets
            
            $
            64,660,000
            
            
            $
            65,332,000**LIABILITIES
                AND STOCKHOLDERS' EQUITY**LiabilitiesAccounts
                payable and accrued liabilities
            
            $
            233,000
            
            
            $
            307,000Due
                to related parties
            
            
            35,000
            
            
            
            --Secured
                borrowings
            
            
            --
            
            
            
            310,000Notes
                payable
            
            
            148,000
            
            
            
            22,000Deposit
                liability
            
            
            1,533,000
            
            
            
            1,255,000Unearned
                revenue
            
            
            --
            
            
            
            69,000Dividend
                payable
            
            
            323,000
            
            
            
            1,030,000Total
                liabilities
            
            
            2,272,000
            
            
            
            2,993,000Commitments
                and ContingenciesStockholders'
                equityPreferred
                stock, $0.0001 par value; 1,000,000 shares authorized; none
                issued
            
            
            --
            
            
            
            --Common
                stock, $0.0001 par value; 25,000,000 shares authorized; 6,871,883
                share
                issued and outstanding at June 30, 2007 and 6,869,790 shares issued
                and
                outstanding at December 31, 2006
            
            
            1,000
            
            
            
            1,000Additional
                paid in capital
            
            
            62,247,000
            
            
            
            62,235,000Retained
                earnings
            
            
            (182,000
            )
            
            
            (7,000
            )Accumulated
                other comprehensive income
            
            
            322,000
            
            
            
            110,000Total
                stockholders' equity
            
            
            62,388,000
            
            
            
            62,339,000Total
                liabilities and stockholders' equity
            
            $
            64,660,000
            
            
            $
            65,332,000





See
          review report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of these consolidated
          statements.
 -
          1
          -
 *Table
          of Contents*


**VESTIN
                  REALTY MORTGAGE I,
                  INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(UNAUDITED)****For
                  The Three Months Ended**
              
              
              **For
                  The Three Months Ended**
              
              
              **For
                  The Six**
                **Months
                  Ended**
              
              
              **For
                  The Six**
                **Months
                  Ended****June
                  30, 2007**
              
              
              **June
                  30, 2006**
              
              
              **June
                  30, 2007**
              
              
              **June
                  30, 2006****Revenues**Interest
                  income from investment in real estate loans
              
              $
              1,154,000
              
              
              $
              981,000
              
              
              $
              2,331,000
              
              
              $
              2,087,000Dividend
                  income - related party
              
              
              68,000
              
              
              
              --
              
              
              
              105,000
              
              
              
              --Recovery
                  of allowance for doubtful notes receivable
              
              
              160,000
              
              
              
              --
              
              
              
              258,000
              
              
              
              --Other
                  income
              
              
              186,000
              
              
              
              116,000
              
              
              
              212,000
              
              
              
              174,000Total
                  revenues
              
              
              1,568,000
              
              
              
              1,097,000
              
              
              
              2,906,000
              
              
              
              2,261,000**Operating
                  expenses**Management
                  fees-related party
              
              
              69,000
              
              
              
              69,000
              
              
              
              138,000
              
              
              
              138,000Provision
                  for loan loss
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              3,000,000Interest
                  expense
              
              
              7,000
              
              
              
              10,000
              
              
              
              13,000
              
              
              
              71,000Professional
                  fees
              
              
              216,000
              
              
              
              120,000
              
              
              
              344,000
              
              
              
              316,000Professional
                  fees - related party
              
              
              10,000
              
              
              
              15,000
              
              
              
              19,000
              
              
              
              26,000Other
              
              
              128,000
              
              
              
              65,000
              
              
              
              247,000
              
              
              
              168,000Total
                  operating expenses
              
              
              430,000
              
              
              
              279,000
              
              
              
              761,000
              
              
              
              3,719,000**Income
                  (loss) from operations**
              
              
              1,138,000
              
              
              
              818,000
              
              
              
              2,145,000
              
              
              
              (1,458,000
              )**Income
                  from real estate held for sale**Net
                  gain on sale of real estate held for sale
              
              
              --
              
              
              
              2,000
              
              
              
              --
              
              
              
              2,000Write
                  down on real estate held for sale
              
              
              (373,000
              )
              
              
              --
              
              
              
              (373,000
              )
              
              
              --Income
                  (expenses) related to real estate held for sale
              
              
              (31,000
              )
              
              
              (3,000
              )
              
              
              4,000
              
              
              
              (19,000
              )Total
                  income (loss) from real estate held for sale
              
              
              (404,000
              )
              
              
              (1,000
              )
              
              
              (369,000
              )
              
              
              (17,000
              )Income
                  (loss) before provision for income taxes
              
              
              734,000
              
              
              
              817,000
              
              
              
              1,776,000
              
              
              
              (1,475,000
              )Provision
                  for income taxes
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --**NET
                  INCOME (LOSS)**
              
              $
              734,000
              
              
              $
              817,000
              
              
              $
              1,776,000
              
              
              $
              (1,475,000
              )Basic
                  and diluted earnings (loss) per weighted average common share /
                  membership
                  unit
              
              $
              0.11
              
              
              $
              0.12
              
              
              $
              0.26
              
              
              $
              (0.21
              )Dividends
                  declared per common share / cash distribution to members per membership
                  unit
              
              $
              0.14
              
              
              $
              0.10
              
              
              $
              0.28
              
              
              $
              0.16Weighted
                  average common shares / membership units
              
              
              6,871,260
              
              
              
              6,867,957
              
              
              
              6,870,813
              
              
              
              6,896,712






See
          review report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of these consolidated
          statements.
 -
          2
          -
 *Table
          of Contents*





**VESTIN
                REALTYMORTGAGE I, INC.****CONSOLIDATED
                STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE
                INCOME****FOR
                THE SIX MONTHS ENDED JUNE 30, 2007****(UNAUDITED)****Common
                Stock****Number
                of Shares**
            
            
            **Amount**
            
            
            **Additional
                Paid-in-Capital**
            
            
            **Retained
                Earnings**
            
            
            **Accumulated
                Other Comprehensive**
              **Income**
            
            
            **Total**Stockholders'
                Equity at December 31, 2006
            
            
            6,869,790
            
            
            $
            1,000
            
            
            $
            62,235,000
            
            
            $
            (7,000
            )
            
            $
            110,000
            
            
            $
            62,339,000Comprehensive
                Income:Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,776,000
            
            
            
            
            
            
            
            1,776,000Unrealized
                Gain on Marketable Securities - Related Party
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            212,000
            
            
            
            212,000Comprehensive
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,988,000Dividends
                Declared to Stockholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,951,000
            )
            
            
            
            
            
            
            (1,951,000
            )Reinvestment
                of Dividends
            
            
            2,093
            
            
            
            --
            
            
            
            12,000
            
            
            
            
            
            
            
            
            
            
            
            12,000Stockholders'
                Equity at June 30, 2007 **(Unaudited)**
            
            
            6,871,883
            
            
            $
            1,000
            
            
            $
            62,247,000
            
            
            $
            (182,000
            )
            
            $
            322,000
            
            
            $
            62,388,000








See
          review report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of these consolidated
          statements.
 -
          3
          -
 *Table
          of Contents*





**VESTIN
                REALTY MORTGAGEI, INC.****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNADUITED)****For
                The Six**
              **Months
                Ended**
            
            
            **For
                The Six**
              **Months
                Ended****June
                30, 2007**
            
            
            **June
                30, 2006****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            1,776,000
            
            
            $
            (1,475,000
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:
            
            
            --Write
                down of real estate held for sale
            
            
            373,000
            
            
            
            --Recovery
                of allowance for doubtful notes receivable
            
            
            (258,000
            )
            
            
            --Provision
                for loan loss
            
            
            --
            
            
            
            3,000,000Gain
                on sale of marketable securities
            
            
            --
            
            
            
            (1,000
            )Amortized
                interest income
            
            
            (69,000
            )
            
            
            --Change
                in operating assets and liabilities:
            
            
            --Interest
                and other receivables
            
            
            42,000
            
            
            
            163,000Due
                to/from Manager
            
            
            36,000
            
            
            
            248,000Due
                to VRM II
            
            
            --
            
            
            
            4,000Other
                assets
            
            
            112,000
            
            
            
            (9,000
            )Accounts
                payable and accrued liabilities
            
            
            (74,000
            )
            
            
            127,000Net
                cash provided by operating activities
            
            
            1,938,000
            
            
            
            2,057,000**Cash
                flows from investing activities:**Investments
                in real estate loans
            
            
            (5,816,000
            )
            
            
            (21,055,000
            )Purchase
                of investments in real estate loans from:
            
            
            --VRM
                II
            
            
            --
            
            
            
            (500,000
            )Third
                parties
            
            
            --
            
            
            
            (75,000
            )Proceeds
                from loan payoffs
            
            
            7,338,000
            
            
            
            24,470,000Sale
                of investments in real estate loans to:
            
            
            --VRM
                II
            
            
            --
            
            
            
            1,200,000Third
                parties
            
            
            --
            
            
            
            125,000Proceeds
                from sale of investment in real estate held for sale
            
            
            --
            
            
            
            25,000Legal
                expenses paid and applied against loan allowance
            
            
            (138,000
            )
            
            
            (126,000
            )Proceeds
                from note receivable
            
            
            266,000
            
            
            
            9,000Purchase
                of marketable securities - related party
            
            
            (964,000
            )
            
            
            --Proceeds
                from sale of marketable securities
            
            
            --
            
            
            
            1,717,000Purchase
                of certificates of deposit
            
            
            --
            
            
            
            (2,532,000
            )Proceeds
                from maturities of certificates of deposit
            
            
            150,000
            
            
            
            --Proceeds
                from unearned revenue
            
            
            --
            
            
            
            100,000Deposit
                liability
            
            
            278,000
            
            
            
            331,000Net
                cash provided by investing activities
            
            $
            1,114,000
            
            
            $
            3,689,000





See
          review report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of these consolidated
          statements.
 -
          4
          -
 *Table
          of Contents*





**VESTIN
                REALTY MORTGAGE I, INC.****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNAUDITED)****For
                The Six**
              **Months
                Ended**
            
            
            **For
                The Six**
              **Months
                Ended****June
                30, 2007**
            
            
            **June
                30, 2006****Cash
                flows from financing activities:**Principal
                payments on notes payable
            
            $
            (60,000
            )
            
            $
            (923,000
            )Dividends
                paid to stockholders, net of reinvestments
            
            
            (2,570,000
            )
            
            
            --Dividends
                paid to stockholders, net of reinvestments - related party
            
            
            (76,000
            )
            
            
            --Members'
                distributions, net of reinvestments
            
            
            --
            
            
            
            (1,668,000
            )Members'
                distributions - related party
            
            
            --
            
            
            
            (25,000
            )Members'
                redemptions
            
            
            --
            
            
            
            (6,377,000
            )Net
                cash used in financing activities
            
            
            (2,706,000
            )
            
            
            (8,993,000
            )**NET
                CHANGE IN CASH**
            
            
            346,000
            
            
            
            (3,247,000
            )**Cash,
                beginning of period**
            
            
            1,523,000
            
            
            
            7,884,000**Cash,
                end of period**
            
            $
            1,869,000
            
            
            $
            4,637,000**Supplemental
                disclosures of cash flows information:**Interest
                paid
            
            $
            7,000
            
            
            $
            71,000Non-cash
                investing and financing activities:Dividend
                payable
            
            $
            323,000
            
            
            $
            --Adjustment
                to note receivable and related allowance
            
            $
            6,000
            
            
            $
            --Payoffs
                of loans funded through secured borrowings
            
            $
            310,000
            
            
            $
            2,719,000Loan
                rewritten with same or similar collateral
            
            $
            300,000
            
            
            $
            --Unearned
                revenue from loans rewritten with same or similar property as
                collateral
            
            $
            69,000
            
            
            $
            225,000Reinvestment
                of dividends
            
            $
            12,000
            
            
            $
            --Unrealized
                gain on marketable securities - related party
            
            $
            212,000
            
            
            $
            --











See
          review report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of these consolidated
          statements.
 -
          5
          -
 *Table
          of Contents*





**VESTIN
      REALTYMORTGAGE I, INC**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007**





**(UNAUDITED)**





**NOTE
      A — ORGANIZATION**





Vestin
      Fund I, LLC (“Fund I”) was organized in December 1999 as a Nevada limited
      liability company for the purpose of investing in real estate
      loans.  Vestin Realty Mortgage I, Inc. (“VRM I”) was organized in
      January 2006 as a Maryland corporation for the sole purpose of effecting a
      merger with Fund I.  On May 1, 2006, Fund I merged into VRM I and the
      members of Fund I received one share of VRM I’s common stock for each membership
      unit of Fund I.  References in this report to the “Company”, “we”,
“us” or “our” refer to Fund I with respect to the period prior to May 1, 2006
      and to VRM I with respect to the period commencing on May 1,
      2006.  Because we were a limited liability company (“LLC”) during the
      prior periods reflected in this report, we make reference to Fund I’s “members”
rather than “stockholders” in reporting our financial results.





We
      invest
      in loans secured by real estate through deeds of trust or mortgages (hereafter
      referred to collectively as “deeds of trust” and as defined in our Management
      Agreement as “Mortgage Assets”).  We commenced operations in August
      2000.





We
      operate as a real estate investment trust (“REIT”).  We are not a
      mutual fund or an investment company within the meaning of the Investment
      Company Act of 1940, nor are we subject to any regulation
      thereunder.  As a REIT, we are required to have a December 31 fiscal
      year end.





Our
      manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
      corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
      Group”), a Delaware corporation.  Michael Shustek, the CEO and
      director of our manager and CEO, President and a director of us, wholly owns
      Vestin Group, Inc., which is engaged in asset management, real estate lending
      and other financial services though its subsidiaries.  Our manager,
      prior to June 30, 2006, also operated as a licensed Nevada mortgage broker
      and
      was engaged in the business of brokerage, placement and servicing of commercial
      loans secured by real property.  On July 1, 2006, the mortgage broker
      license was issued to an affiliated company, Vestin Originations, Inc. that
      has
      continued the business of brokerage, placement and servicing of commercial
      real
      estate loans.  Vestin Originations, Inc. is a wholly owned subsidiary
      of Vestin Group.





Pursuant
      to our management agreement, our manager implements our business strategies
      on a
      day-to-day basis, manages and provides services to us, and provides similar
      services to any of our subsidiaries.  Without limiting the foregoing,
      our manager performs other services as may be required from time to time for
      management and other activities relating to our assets, as our manager shall
      deem appropriate under the particular circumstances.  Consequently,
      our operating results are dependent upon our manager’s ability and performance
      in managing our operations and servicing our assets.





Vestin
      Mortgage, Inc. is also the manager of Vestin Realty Mortgage II, Inc., as the
      successor by merger to Vestin Fund II, LLC (“Fund II”), referred to as (“VRM
      II”), Vestin Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company
      wholly owned by our manager’s CEO.  These entities also invest in real
      estate loans.





The
      consolidated financial statements include the accounts of us and our wholly
      owned taxable REIT subsidiary, TRS I, Inc.  All significant
      inter-company transactions and balances have been eliminated in
      consolidation.





See
          review report of Independent Registered Public Accounting Firm.
 -
          6
          -
 *Table
          of Contents*


**NOTE
      B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Management
      Estimates**





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America (“GAAP”) requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the consolidated financial statements and the reported amounts
      of
      revenues and expenses during the reporting period.  Actual results
      could differ from those estimates.





**Cash
      and Cash Equivalents**





Cash
      and
      cash equivalents include interest-bearing and non-interest-bearing bank
      deposits, money market accounts, short-term certificates of deposit with
      original maturities of three months or less, and short-term instruments with
      a
      liquidation provision of one month or less.





**Revenue
      Recognition**





Interest
      is recognized as revenue when earned according to the terms of the loans, using
      the effective interest method.  We do not accrue interest income on
      loans once they are determined to be impaired.  A loan is impaired
      when based on current information and events, it is probable that we will be
      unable to collect all amounts due according to the contractual terms of the
      loan
      agreement or when the payment of interest is 90 days past due.  Cash
      receipts will be allocated to interest income, except when such payments are
      specifically designated by the terms of the loan as principal reduction or
      when
      management does not believe our investment in the loan is fully
      recoverable.





**Investments
      in Real Estate Loans**





We
      may
      from time to time acquire or sell investments in real estate loans from or
      to
      our manager or other related parties pursuant to the terms of our Management
      Agreement provided the price does not exceed the par value of the
      loan.  The primary purpose is to either free up capital to provide
      liquidity for various reasons, such as loan diversification, or place excess
      capital in investments to maximize the use of our capital.  Selling or
      buying loans allows us to diversify our loan portfolio within these
      parameters.  Due to the short-term nature of the loans we make and the
      similarity of interest rates in loans we normally would invest in, the fair
      value of a loan typically approximates its carrying
      value.  Accordingly, discounts or premiums typically do not apply upon
      sales of loans and therefore, generally no gain or loss is recorded on these
      transactions, regardless of whether to a related or unrelated
      party.





Investments
      in real estate loans are secured by deeds of trust or
      mortgages.  Generally, our real estate loans require interest only
      payments with a balloon payment of the principal at maturity.  We have
      both the intent and ability to hold real estate loans until maturity and
      therefore, real estate loans are classified and accounted for as held for
      investment and are carried at amortized cost.  Loans sold to or
      purchased from affiliates are accounted for at the principal balance and no
      gain
      or loss is recognized by us or any affiliate.  Loan to value ratios
      are based on appraisals obtained at the time of loan origination and may not
      reflect subsequent changes in value estimates.  Such appraisals are
      generally dated within 12 months of the date of loan origination and may be
      commissioned by the borrower.  The appraisals may be for the current
      estimate of the “as-if developed” value of the property, which approximates the
      post-construction value of the collateralized property assuming that such
      property is developed.  As-if developed values on raw land loans or
      acquisition and development loans often dramatically exceed the immediate sales
      value and may include anticipated zoning changes and timely successful
      development by the purchaser.  As most of the appraisals will be
      prepared on an as-if developed basis, if a loan goes into default prior to
      any
      development of a project, the market value of the property may be substantially
      less than the appraised value.  As a result, there may be less
      security than anticipated at the time the loan was originally
      funded.  If there is less security and a default occurs, we may not
      recover the full amount of the loan.





See
          review report of Independent Registered Public Accounting Firm.
 -
          7
          -
 *Table
          of Contents*


**Allowance
      for Loan Losses**





We
      maintain an allowance for loan losses on our investments in real estate loans
      for estimated credit impairment.  Our manager’s estimate of losses is
      based on a number of factors including the types and dollar amounts of loans
      in
      the portfolio, adverse situations that may affect the borrower’s ability to
      repay, prevailing economic conditions and the underlying collateral securing
      the
      loan.  Additions to the allowance are provided through a charge to
      earnings and are based on an assessment of certain factors, which may indicate
      estimated losses on the loans.  Actual losses on loans are recorded as
      a charge-off or a reduction to the allowance for loan
      losses.  Subsequent recoveries of amounts previously charged off are
      added back to the allowance or included as income.





Estimating
      allowances for loan losses requires significant judgment about the underlying
      collateral, including liquidation value, condition of the collateral, competency
      and cooperation of the related borrower and specific legal issues that affect
      loan collections or taking possession of the property.  As a
      commercial real estate lender willing to invest in loans to borrowers who may
      not meet the credit standards of other financial institutional lenders, the
      default rate on our loans could be higher than those generally experienced
      in
      the real estate lending industry.  We, our manager and Vestin
      Originations generally approves loans more quickly than other real estate
      lenders and, due to our expedited underwriting process, there is a risk that
      the
      credit inquiry we perform will not reveal all material facts pertaining to
      a
      borrower and the security.





Additional
      facts and circumstances are discovered as we continue our efforts in the
      collection and foreclosure processes.  This additional information
      often causes management to reassess its estimates.  In recent years,
      we have revised estimates of our allowance for loan
      losses.  Circumstances that may cause significant changes in our
      estimated allowance include, but are not limited to:





·
            Declines
                in real estate market conditions, which can cause a decrease in expected
                market value;





·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes;





·
            Lack
                of progress on real estate developments after we advance
                funds.  We customarily utilize disbursement agents to monitor
                the progress of real estate developments and approve loan
                advances.  After further inspection of the related property,
                progress on construction occasionally does not substantiate an increase
                in
                value to support the related loan
                advances;





·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon property;
                and





·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.





**Real
      Estate Held For Sale**





Real
      estate held for sale includes real estate acquired through foreclosure and
      will
      be carried at the lower of the recorded amount, inclusive of any senior
      indebtedness, or the property's estimated fair value, less estimated costs
      to
      sell, with fair value based on appraisals and knowledge of local market
      conditions.  While pursuing foreclosure actions, we seek to identify
      potential purchasers of such property.  It is not our intent to invest
      in or own real estate as a long-term investment.  In accordance with
      Statement of Financial Accounting Standards (“FAS”) 144 – *Accounting for the
      Impairment or Disposal of Long Lived Assets*(“FAS 144”), we seek to sell
      properties acquired through foreclosure as quickly as circumstances
      permit.  The carrying values of real estate held for sale are assessed
      on a regular basis from updated appraisals, comparable sales values or purchase
      offers.





See
          review report of Independent Registered Public Accounting Firm.
 -
          8
          -
 *Table
          of Contents*


Management
      classifies real estate held for sale when the following criteria are
      met:





·
            Management
                commits to a plan to sell the
                properties;





·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary;





·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated;





·
            The
                sale of the property is probable;





·
            The
                property is being actively marketed for sale at a reasonable price;
                and





·
            Withdrawal
                or significant modification of the sale is not
                likely.





**Real
      Estate Held For Sale – Seller Financed**





We
      occasionally finance sales of foreclosed properties to independent third
      parties.  In order to record a sale of real estate when the seller is
      providing continued financing, FAS 66 – *Accounting for Sales of Real
      Estate* ("FAS 66'') requires the buyer of the real estate to make minimum
      initial and continuing investments.  Minimum initial investments as
      defined by FAS 66 range from 10% to 25% based on the type of real estate
      sold.  In addition, FAS 66 limits commitments and contingent
      obligations incurred by a seller in order to record a sale.





Because
      we occasionally foreclose on loans with raw land or developments in progress,
      available financing for such properties is often limited and we frequently
      provide financing up to 100% of the selling price on these
      properties.  In addition, we may make additional loans to the buyer to
      continue development of a property.  Although sale agreements are
      consummated at closing, they lack adequate initial investment by the buyer
      to
      qualify as a sales transaction as defined in FAS 66.  These sale
      agreements are not recorded as a sale until the requirements of FAS 66 are
      met.





These
      sale agreements are recorded under the deposit method or cost recovery method
      as
      defined in FAS 66.  Under the deposit method, no profit is recognized
      and any cash received from the buyer is reported as a deposit liability on
      the
      balance sheet.  Under the cost recovery method, no profit is
      recognized until payments by the buyer exceed the carrying basis of the property
      sold.  Principal payments received will reduce the related receivable,
      and interest collections will be recorded as unrecognized gross profit on the
      balance sheet.  The carrying values of these properties are included
      in real estate held for sale on the accompanying consolidated balance
      sheets.





In
      cases
      where the investment by the buyer is significant (generally 20% or more) and
      the
      buyer has an adequate continuing investment, the purchase money debt is not
      subject to future subordination, and a full transfer of risks and rewards has
      occurred, we will use the full accrual method.  Under the full accrual
      method, a sale is recorded and the balance remaining to be paid is recorded
      as a
      normal note.  Interest is recorded as income when
      received.





**Classification
      of Operating Results from Real Estate Held for Sale**





FAS
      144 –
*Accounting for the Impairment or Disposal of Long-Lived Assets* ("FAS
      144'') generally requires operating results from long lived assets held for
      sale
      to be classified as discontinued operations as a separately stated component
      of
      net income.  Our operations related to real estate held for sale are
      separately identified in the accompanying consolidated statements of
      income.





See
          review report of Independent Registered Public Accounting Firm.
 -
          9
          -
 *Table
          of Contents*


**Secured
      Borrowings**





Secured
      borrowings provide an additional source of capital for our lending
      activity.  Secured borrowings allow us to increase the diversification
      of our loan portfolio and to invest in loans that we might not otherwise invest
      in.  We do not receive any fees for entering into secured borrowing
      arrangements; however, we may receive revenue in any differential of the
      interest spread, if applicable.  Loans in which unaffiliated investors
      have participated through inter-creditor agreements (“Inter-creditor
      Agreements”) are accounted for as secured borrowings in accordance with
      Statement of Financial Accounting Standards (“FAS”) 140 – *Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor Agreements provide us additional
      funding sources for real estate loans whereby an unaffiliated investor (the
      “Investor”) may participate on a non-pari passu basis in certain real estate
      loans with us and/or VRM II and/or Fund III (collectively, the “Lead
      Lenders”).  In the event of borrower non- performance, the
      Inter-creditor Agreements generally provide that the Lead Lenders must repay
      the
      Investor’s loan amount either by (i) continuing to remit to the Investor the
      interest due on the participated loan amount; (ii) substituting an alternative
      loan acceptable to the Investor; or (iii) repurchasing the participation from
      the Investor for the outstanding balance plus accrued interest.





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements.  In the event of borrower non-performance,
      the Participation Agreement may allow the Investor to be repaid up to the amount
      of the Investor’s investment prior to the Lead Lender being
      repaid.  Real estate loan financing under the Participation Agreements
      are also accounted for as a secured borrowing in accordance with FAS
      140.  We do not receive any revenues for entering into secured
      borrowing arrangements.





**Investment
      in Marketable Securities – Related Party**





Investment
      in marketable securities – related party consists of stock in VRM
      II.  The securities are stated at fair value as determined by the
      market price as of June 30, 2007.  All securities are classified as
      available-for-sale under the provisions of FAS 115 – *Accounting for Certain
      Investments in Debt and Equity Securities*.





**Fair
      Value of Financial Instruments**





FAS
      107 –
*Disclosures about Fair Value of Financial Instruments*(“FAS 107”)
      requires the determination of fair value of our financial assets.  The
      following methods and assumptions were used to estimate the fair value of
      financial instruments included in the following categories:





(a)
            Certificate
                of Deposits and Short-Term Investments:  The carrying amounts of
                these instruments are at amortized cost, which approximates fair
                value.





(b)
            Investment
                in Real Estate Loans:  The carrying value of these instruments,
                net of the allowance for loan losses, approximates the fair value
                due to
                their short-term maturities.  Fair values for loans, which are
                delinquent and/or in foreclosure are determined by underlying collateral
                securing the loans.





(c)
            Assets
                under Secured Borrowing:  The carrying amount of these
                instruments approximate fair value.  The fair value is estimated
                based upon projected cash flows discounted at the estimated current
                interest rates at which similar loans would be
                made.





At
      June
      30, 2007 and December 31, 2006, the estimated fair values of the real estate
      loans, including seller financed loans, were approximately $52.5 million and
      $54.2 million, respectively.  These estimates were based upon the
      present value of expected cash flows discounted at rates currently available
      for
      similar loans.  Fair value estimates are made at a specific point in
      time; based on relevant market information; are subjective in nature; and
      involve uncertainties and matters of significant
      judgment.  Accordingly, the estimates presented herein are not
      necessarily indicative of the amounts that would be collected upon maturity
      or
      disposition of the loans.





See
          review report of Independent Registered Public Accounting Firm.
 -
          10
          -
 *Table
          of Contents*


**Basic
      and Diluted Earnings Per Common Share**





Basic
      earnings per share (“EPS”) is computed, in accordance with FAS 128 –
*Earnings per Share* (“FAS 128”), by dividing net income available to
      common stockholders by the weighted average number of common shares
      outstanding.  Diluted EPS is similar to basic EPS except that the
      weighted average number of common shares outstanding is increased to include
      the
      number of additional common shares that would have been outstanding if the
      dilutive potential common shares had been exercised.  We had no
      outstanding common share equivalents during the six months ended June 30,
      2007.  The following is a computation of the EPS data for the six
      months ended June 30, 2007:




**For
                  the Three Months Ended****June
                  30, 2007**
              
              
              **For
                  the Six Months Ended June 30, 2007**Net
                  income available to common stockholders
              
              $
              734,000
              
              
              $
              1,776,000Weighted
                  average number of common shares outstanding during the
                  period
              
              
              6,871,260
              
              
              
              6,870,813Basic
                  and diluted earnings per common share
              
              $
              0.11
              
              
              $
              0.26





**Net
      Income Allocated to Members Per Weighted Average Membership
      Unit**





Fund
      I
      was an LLC prior to the merger, which stated net income allocated to members
      per
      weighted average membership unit that is computed by dividing net income
      calculated in accordance with GAAP by the weighted average number of membership
      units outstanding for the period.  The following is a computation of
      the net income per weighted average membership unit for the four months ended
      April 30, 2006, basic earnings per share for the two months ended June 30,
      2007
      and total earnings per weighted average share/membership unit for the six months
      ended June 30, 2007:





**For
                the Four Months Ended April 30, 2006**
            
            
            **For
                the Two Months Ended June 30, 2006**
            
            
            **For
                the Six Months Ended June 30, 2006**Net
                income (loss) available to common stockholders / members
            
            $
            (2,016,000
            )
            
            $
            541,000
            
            
            $
            (1,475,000
            )Weighted
                average number of common shares / units outstanding during the
                period
            
            
            6,910,950
            
            
            
            6,868,740
            
            
            
            6,896,712Basic
                and diluted earnings (loss) per common share / membership
                unit
            
            $
            (0.29
            )
            
            $
            0.08
            
            
            $
            (0.21
            )





**Common
      Stock Dividends**





Cash
      dividends declared during the six months ended June 30, 2007, were $0.28 per
      common share.





On
      July
      23, 2007, the Board of Directors declared a monthly cash dividend of $0.047
      per
      share for the month of July 2007, that will be paid on August 30, 2007, to
      the
      stockholders of record as of August 9, 2007.





**Segments**





We
      operate as one business segment.





See
          review report of Independent Registered Public Accounting Firm.
 -
          11
          -
 *Table
          of Contents*


**Income
      Taxes**





We
      are
      organized and conduct our operations to qualify as a real estate investment
      trust (“REIT”) under Sections 856 to 860 of the Internal Revenue Code of 1986,
      as amended (the “Code”) and to comply with the provisions of the Internal
      Revenue Code with respect thereto.  A REIT is generally not subject to
      federal income tax on that portion of its REIT taxable income (“Taxable Income”)
      which is distributed to its stockholders, provided that at least 90% of Taxable
      Income is distributed and provided that certain other requirements are
      met.





Certain
      assets of ours are held in a taxable REIT subsidiary (“TRS”).  The
      income of a TRS is subject to federal and state income taxes.  The net
      income tax provision after net loss carry forward for the six months ended
      June
      30, 2007, was approximately zero.





**Reclassifications**





Certain
      reclassifications have been made to the prior periods’ consolidated financial
      statements to conform to the current period presentation.


**NOTE
      C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
      RISK**





Financial
      instruments with concentration of credit and market risk include cash and loans
      secured by deeds of trust.





We
      maintain cash deposit accounts and certificates of deposit, which at times
      may
      exceed federally insured limits.  We have not experienced any losses
      in such accounts and believe we are not exposed to any significant credit risk
      related to cash deposits.  As of June 30, 2007 and December 31, 2006,
      we had approximately $1.3 million and $1.5 million, respectively, in excess
      of
      the federally insured limits.





As
      of
      June 30, 2007, 44%, 16%, 9% and 9% of our loans were in Nevada, Hawaii, Arizona
      and Oregon, respectively, compared to 35%, 15%, 9% and 9%, at December 31,
      2006,
      respectively.  As a result of this geographical concentration of our
      real estate loans, a downturn in the local real estate markets in these states
      could have a material adverse effect on us.





At
      June
      30, 2007, the aggregate amount of loans to our four largest borrowers
      represented 34.13% of our total investment in real estate loans, including
      loans
      related to seller financed real estate held for sale.  These real
      estate loans consisted of commercial and land loans, located in Nevada and
      Hawaii with a first lien position, interest rates between 5% and 14%, with
      an
      aggregate outstanding balance of approximately $20.2 million and maturing
      through September 2007.  At December 31, 2006, the aggregate amount of
      loans to our four largest borrowers represented 33.37% of our total investment
      in real estate loans including loans related to seller financed real estate
      held
      for sale.  These real estate loans consisted of commercial and land
      located in Hawaii and Nevada, with a first lien position, interest rates between
      5% and 14%, with an aggregate outstanding balance of approximately $20.3
      million.  The loans in Hawaii described above referred to the RighStar
      loans discussed in Note D – *Investments in Real Estate
      Loans*.  We have a significant concentration of credit risk with
      our four largest borrowers, a default by any of such borrowers could have a
      material adverse effect on us.





The
      success of a borrower’s ability to repay its real estate loan obligation in a
      large lump-sum payment may be dependent upon the borrower’s ability to refinance
      the obligation or otherwise raise a substantial amount of cash.  An
      increase in interest rates over the loan rate applicable at origination of
      the
      loan may have an adverse effect on the borrower’s ability to
      refinance.





**NOTE
      D — INVESTMENTS IN REAL ESTATE LOANS**





As
      of
      June 30, 2007, all of our loans provided for payments of interest only with
      a
“balloon” payment of principal payable in full at the end of the term, with the
      exception of one of our loans that had both principal and interest payments
      along with a “balloon” payment at the end of the term.  As of June 30,
      2007, this loan had a balance of approximately $7.5 million and had an original
      term of thirty-six months, maturing in the next three months.





See
          review report of Independent Registered Public Accounting Firm.
 -
          12
          -
 *Table
          of Contents*


In
      addition, we may invest in real estate loans that require borrowers to maintain
      interest reserves funded from the principal amount of the loan for a period
      of
      time.  At June 30, 2007, we had approximately $4.9 million in
      investments in real estate loans that had interest reserves where the total
      outstanding principal due to our co-lenders and us was approximately $56.2
      million.  These loans had interest reserves of approximately $1.8
      million, of which our portion was approximately $0.2 million.  At
      December 31, 2006, we had approximately $17.1 million in investments in real
      estate loans that had interest reserves where the total outstanding principal
      due to our co-lenders and us was approximately $120.3 million.  These
      loans had interest reserves of approximately $5.6 million, of which our portion
      was approximately $0.7 million.





As
      of
      June 30, 2007, we had five real estate loan products consisting of commercial,
      construction, acquisition and development, land and residential.  The
      effective interest rates on all product categories range from 5% to
      14%.  Revenue by product will fluctuate based upon relative balances
      during the period.





Investments
      in real estate loans including loans related to seller financed real estate
      held
      for sale, as of June 30, 2007, were as follows:





**Loan
                Type**
            
            **Number
                Of Loans**
            
            
            **Balance
                (2)**
            
            
            **Weighted
                Average Interest Rate**
            
            
            **Portfolio
                Percentage**
            
            
            **Weighted
                Average Loan To Value (1)**Acquisition
                and development
            
            
            4
            
            
            $
            3,450,000
            
            
            
            12.41%
            
            
            
            5.84%
            
            
            
            65.96%Commercial
            
            
            16
            
            
            
            38,108,000
            
            
            
            10.46%
            
            
            
            64.50%
            
            
            
            80.95%Construction
            
            
            6
            
            
            
            3,327,000
            
            
            
            11.48%
            
            
            
            5.63%
            
            
            
            70.64%Land
            
            
            6
            
            
            
            13,200,000
            
            
            
            12.43%
            
            
            
            22.34%
            
            
            
            58.90%Residential
            
            
            1
            
            
            
            1,000,000
            
            
            
            12.00%
            
            
            
            1.69%
            
            
            
            80.00%33
            
            
            $
            59,085,000
            
            
            
            11.10%
            
            
            
            100.00%
            
            
            
            74.55%





Investments
      in real estate loans including loans related to seller financed real estate
      held
      for sale, as of December 31, 2006 were as follows:





**Loan
                Type**
            
            **Number
                Of Loans**
            
            
            **Balance
                (2)**
            
            
            **Weighted
                Average Interest Rate**
            
            
            **Portfolio
                Percentage**
            
            
            **Weighted
                Average Loan To Value (1)**Acquisition
                and development
            
            
            4
            
            
            $
            2,788,000
            
            
            
            12.01%
            
            
            
            4.60%
            
            
            
            64.20%Commercial
            
            
            14
            
            
            
            36,072,000
            
            
            
            9.99%
            
            
            
            59.43%
            
            
            
            81.44%Construction
            
            
            6
            
            
            
            5,994,000
            
            
            
            11.68%
            
            
            
            9.87%
            
            
            
            64.66%Land
            
            
            9
            
            
            
            15,843,000
            
            
            
            12.31%
            
            
            
            26.10%
            
            
            
            52.16%33
            
            
            $
            60,697,000
            
            
            
            10.85%
            
            
            
            100.00%
            
            
            
            71.35%





(1)
            Loan
                to value ratios are based on the most recent appraisals and may not
                reflect subsequent changes in value.  Such appraisals, which may
                be commissioned by the borrower, are generally dated no greater than
                12
                months prior to the date of loan origination.  The appraisals
                may be for the current estimate of the “as-if developed” value of the
                property, which approximates the post-construction value of the
                collateralized property assuming that such property is
                developed.  “As-if developed” values on raw land loans or
                acquisition and development loans often dramatically exceed the immediate
                sales value and may include anticipated zoning changes, and successful
                development by the purchaser; upon which development is dependent
                on
                availability of financing.  As most of the appraisals will be
                prepared on an “as-if developed” basis, if a loan goes into default prior
                to completion of the development of the project, the market value
                of the
                property may be substantially less than the appraised value.  As
                a result, there may be less security than anticipated at the time
                the loan
                was originally made.  If there is less security and a default
                occurs, we may not recover the full amount of the
                loan.





See
          review report of Independent Registered Public Accounting Firm.
 -
          13
          -
 *Table
          of Contents*





(2)
            The
                following table reconciles the balance of the loan portfolio to the
                amount
                shown on the accompanying Consolidated Balance Sheets.  The
                contra accounts represent the amount of real estate held for sale
                sold to
                third parties where we provided financing.  GAAP requires the
                borrower to have a certain percentage of equity ownership (ranging
                from
                10% to 25%) to allow us to record the sale of a property.  In
                addition, the borrower must maintain a minimum commitment in the
                property
                on a continuing basis.  Therefore, until the borrower meets this
                requirement, the investment in the new loan is reduced by the amount
                originally invested in the real estate held for
                sale.





**June
                30, 2007**
              **Balance**
            
            
            **December
                31, 2006**
              **Balance**Balance
                per loan portfolio
            
            $
            59,085,000
            
            
            $
            60,697,000Less:Seller
                financed loans included in real estate held for sale
            
            
            (7,911,000
            )
            
            
            (7,911,000
            )Proceeds
                of principal on seller financed loans included in deposit
                liability
            
            
            469,000
            
            
            
            379,000Allowance
                for loan losses
            
            
            (4,396,000
            )
            
            
            (4,534,000
            )Balance
                per consolidated balance sheet
            
            $
            47,247,000
            
            
            $
            48,631,000





The
      following is a schedule of priority of real estate loans, including loans
      related to seller financed real estate held for sale as of June 30, 2007 and
      December 31, 2006:





**Loan
                Type**
            
            **Number
                of Loans**
            
            
            **June
                30, 2007**
              **Balance***
            
            
            **Portfolio**
              **Percentage**
            
            
            **Number
                of Loans**
            
            
            **December
                31, 2006**
              **Balance***
            
            
            **Portfolio**
              **Percentage**First
                deeds of trust
            
            
            31
            
            
            $
            58,069,000
            
            
            
            98.28%
            
            
            
            31
            
            
            $
            60,359,000
            
            
            
            99.44%Second
                deeds of trust
            
            
            2
            
            
            
            1,016,000
            
            
            
            1.72%
            
            
            
            2
            
            
            
            338,000
            
            
            
            0.56%33
            
            
            $
            59,085,000
            
            
            
            100.00%
            
            
            
            33
            
            
            $
            60,697,000
            
            
            
            100.00%





*  Please
      see (2) above





The
      following is a schedule of contractual maturities of investments in real estate
      loans, including loans related to seller financed real estate held for sale,
      as
      of June 30, 2007:





July
                2007 – September 2007
            
            $
            38,400,000October
                2007 – December 2007
            
            
            10,750,000January
                2008 – March 2008
            
            
            6,219,000April
                2008 – June 2008
            
            
            716,000July
                2008 – September 2008
            
            
            3,000,000Thereafter
            
            
            --Total
            
            $
            59,085,000





See
          review report of Independent Registered Public Accounting Firm.
 -
          14
          -
 *Table
          of Contents*


The
      following is a schedule by geographic location of investments in real estate
      loans, including loans related to seller financed real estate held for sale,
      as
      of June 30, 2007 and December 31, 2006:





**June
                30, 2007**
              **Balance***
            
            
            **Portfolio
                Percentage**
            
            
            **December
                31, 2006**
              **Balance***
            
            
            **Portfolio
                Percentage**Arizona
            
            $
            5,500,000
            
            
            
            9.31%
            
            
            $
            5,509,000
            
            
            
            9.08%California
            
            
            3,750,000
            
            
            
            6.35%
            
            
            
            6,988,000
            
            
            
            11.51%Hawaii
            
            
            9,307,000
            
            
            
            15.75%
            
            
            
            9,307,000
            
            
            
            15.33%Nevada
            
            
            26,005,000
            
            
            
            44.01%
            
            
            
            21,310,000
            
            
            
            35.11%New
                York
            
            
            2,819,000
            
            
            
            4.77%
            
            
            
            3,246,000
            
            
            
            5.35%Oklahoma
            
            
            1,937,000
            
            
            
            3.28%
            
            
            
            1,937,000
            
            
            
            3.19%Oregon
            
            
            5,200,000
            
            
            
            8.80%
            
            
            
            5,200,000
            
            
            
            8.57%Texas
            
            
            4,167,000
            
            
            
            7.05%
            
            
            
            4,168,000
            
            
            
            6.87%Washington
            
            
            400,000
            
            
            
            0.68%
            
            
            
            3,032,000
            
            
            
            4.99%Total
            
            $
            59,085,000
            
            
            
            100.00%
            
            
            $
            60,697,000
            
            
            
            100.00%





*  Please
      see (2) above





At
      June
      30, 2007, the following loans were non-performing (based on current information
      and events, it is probable that we will be unable to collect all amounts due
      according to the contractual terms of the loan agreement or when the payment
      of
      interest is 90 days past due); RightStar (Part I & Part II), Monterrey
      Associates LP, Forest Development LLC and Pirates Lake, LTD.  These
      loans are currently carried on our books at a value of approximately $9.8
      million, net of allowance for loan losses of approximately $4.4 million for
      the
      RightStar loans.  These loans have been placed on non-accrual of
      interest status and are the subject of pending foreclosure
      proceedings.





·
            RightStar
                (Part I & Part II) are loans secured by a lien on the business and
                virtually all of the property of RightStar, which includes 4 cemeteries
                and 8 mortuaries in Hawaii with an outstanding balance of approximately
                $32.3 million of which our portion is approximately $9.3 million
                ($4.4
                million for Part I and $4.9 million for Part II).  The lenders
                have commenced a judicial foreclosure on the loans, Part I and Part
                II.





·
            Monterrey
                Associates, L.P., is a loan secured by a 248 Unit apartment complex
                in
                Oklahoma City, OK, along with other real estate collateral, with
                an
                outstanding balance of approximately $4.4 million of which our portion
                is
                approximately $1.2 million.  The loan is ten months in arrears
                in payments of interest.  Our manager has commenced foreclosure
                proceedings and is filing litigation to enforce the personal guarantee
                on
                the loan.  Our manager has evaluated this loan and concluded
                that the value of the underlying collateral is sufficient to protect
                us
                from loss of principal.  No specific allowance was deemed
                necessary.  In addition, our manager completed foreclosure
                proceedings on a second mortgage on a 233 unit apartment complex
                during
                the three months ended March 31, 2007.  We obtained title to the
                property subject to a non-recourse first mortgage, which was held
                by an
                unrelated third party.  During the three months ended March 31,
                2007, we sold this property to an unrelated third party who is subject
                to
                the non-recourse first mortgage.  This transaction did not
                result in any gain or loss.





See
          review report of Independent Registered Public Accounting Firm.
 -
          15
          -
 *Table
          of Contents*





·
            Forest
                Development, LLC, is a loan secured by two 4,000 square foot single
                family
                residences, together with the four remaining lots in a subdivision,
                located on Mt. Charleston, NV with an outstanding balance of approximately
                $2.6 million of which our portion is approximately $0.6
                million.  The loan is eight months in arrears in payment of
                interest.  Our manager has commenced foreclosure proceedings and
                has filed litigation to enforce the personal guarantee on the
                loan.  Forest Development subsequently counterclaimed and also
                filed a separate lawsuit against us, VRM II, Fund I, Fund II, Fund
                III,
                Vestin Mortgage, Inc. and Vestin Originations, Inc (the “Defendants”)
                alleging that the Defendants breached the construction loan agreement
                and
                thus jeopardized the completion of the project alleging actions for
                fraud,
                breach of fiduciary duty, breach of Construction Loan Agreement,
                negligence, intentional interference with contractual relations,
                bad faith
                breach of contract, conversion, undue and improper control and
                interference over borrower’s business, joint venture or de facto
                partnership, and injunctive relief.  The lawsuit seeks monetary
                damages, punitive damages, and seeks an injunction to stop the
                foreclosure.  The Defendants believe that the allegations are
                without merit and that they have adequate defenses.  The
                Defendants intend to undertake a vigorous defense.  In April
                2007, the borrower filed for protection under Chapter 11 of the United
                State Bankruptcy Code.  Our manager has evaluated this loan and
                concluded that the value of the underlying collateral is sufficient
                to
                protect us from loss of principal.  No specific allowance was
                deemed necessary.




·
              Pirates
                  Lake, LTD., is a loan to provide bridge financing for approximately
                  46.75
                  acres of land in Galveston, TX, with an outstanding balance of
                  approximately $8.5 million of which our portion is approximately
                  $3.0
                  million. The loan is secured by a first lien on the property and
                  guaranteed by the borrower.  Additionally, the loan is secured
                  by a second position lien on approximately 0.5 acres of land located
                  in
                  Houston, Texas.  The loan is two months in arrears in payments
                  of interest.  Our manager has commenced foreclosure
                  proceedings.  On August 7, 2007, we, VRM II and Fund III entered
                  into a settlement agreement with the borrower whereby the foreclosure
                  was
                  postponed.  Principal, accrued interest and $75,000 for expenses
                  incurred by us, VRM II and Fund III relating to the loan is now
                  due on
                  October 1, 2007.  Our manager has evaluated this loan and
                  concluded that the value of the underlying collateral is sufficient
                  to
                  protect us from loss of principal.  No specific allowance was
                  deemed necessary.


The
      following schedule summarizes the non-performing loans as of June 30,
      2007:





**Description
                of Collateral**
            
            **Balance
                at**
              **June
                30, 2007**
            
            **Maturity
                Date**
            
            **Number
                of Months**
              **Non-Performing**
            
            
            **Percentage
                of Total Loan Balance**4
                cemeteries and 8 mortuaries in Hawaii Part I**
            
            $
            4,415,000
            
            3/31/2004
            
            
            39
            
            
            24%
                of Part I4
                cemeteries and 8 mortuaries in Hawaii Part II**
            
            
            4,892,000
            
            3/31/2004
            
            
            39
            
            
            35%
                of Part II248-unit
                apartment complex in Oklahoma City, OK
            
            
            1,237,000
            
            9/1/2006
            
            
            10
            
            
            
            28%2
                single family residences and 4 lots in Mt. Charleston, NV
            
            
            631,000
            
            10/27/2006
            
            
            8
            
            
            
            24%46.75
                acres of land located in Galveston, TX
            
            
            3,000,000
            
            6/30/2007
            
            
            2
            
            
            
            35%$
            14,175,000





**  Please
      refer to (3) *Specific Reserve Allowance*below.





Our
      manager periodically reviews and makes a determination as to whether the
      allowance for loan losses is adequate to cover any potential
      losses.  Additions to the allowance for loan losses are made by
      charges to the provision for loan losses.  Recoveries of previously
      charged off amounts are credited to the allowance for loan losses or included
      as
      income when the asset is disposed.  As of June 30, 2007, we have
      provided a specific reserve related to the two loans secured by 4 cemeteries
      and
      8 mortuaries in Hawaii (“RightStar loans”), of approximately $4.4
      million.  Our manager evaluated the loans and concluded that the
      remaining underlying collateral was sufficient to protect us against further
      losses of principal.  Our manager will continue to evaluate these
      loans in order to determine if any other allowance for loan losses should be
      recorded.





See
          review report of Independent Registered Public Accounting Firm.
 -
          16
          -
 *Table
          of Contents*


Because
      any decision regarding the allowance for loan losses reflects a judgment about
      the probability of future events, there is an inherent risk that such judgments
      will prove incorrect.  In such event, actual losses may exceed (or be
      less than) the amount of any reserve.  To the extent that we
      experience losses greater than the amount of our reserves, we may incur a charge
      to our earnings that will adversely affect our operating results and the amount
      of any distributions payable to our stockholders.





The
      following is a roll-forward of the allowance for loan losses for the six months
      ended June 30, 2007





**Description**
            
            **Balance
                at**
              **December
                31, 2006**
            
            
            **Specific
                Reserve Allocation**
            
            
            **RightStar
                Legal Reserve**
            
            
            **Balance
                at**
              **June
                30, 2007**Specific
                allowance (3)
            
            $
            4,534,000
            
            
            $
            --
            
            
            $
            (138,000
            )
            
            
            4,396,000Total
            
            $
            4,534,000
            
            
            $
            --
            
            
            $
            (138,000
            )
            
            $
            4,396,000





**(3)**
            **Specific
                Reserve Allowance**





*RightStar
      Loan Allowance* -RightStar, Inc. (“RightStar”) defaulted on our loans in the
      fall of 2004.  The lenders commenced a judicial foreclosure on the
      loans, part I and part II, which is secured by a lien on the business and
      virtually all of the property of RightStar, which includes 4 cemeteries and
      8
      mortuaries in Hawaii.  The aggregate principal balance of the loan is
      approximately $32.3 million.  The loans, part I and part II, are owned
      as follows:





**Senior
                Principal Amount (Part II)**
            
            
            **Junior
                Principal Amount (Part I)**
            
            
            **Total**VRM
                I
            
            $
            4,892,000
            
            
            $
            4,415,000
            
            
            $
            9,307,000VRM
                II
            
            
            9,108,000
            
            
            
            8,183,000
            
            
            
            17,291,000Vestin
                Mortgage
            
            
            --
            
            
            
            5,657,000
            
            
            
            5,657,000**Total**
            
            $
            14,000,000
            
            
            $
            18,255,000
            
            
            $
            32,255,000





The
      loans
      are subject to an inter-creditor agreement which states the order of priority
      for any payments received are disbursed as follows:





·
            First
                to reimburse collection and foreclosure expenses advanced by the
                lenders;





·
            Second
                to pay past due interest on the Senior Principal Amount (Part II)
                (including default rate interest);





·
            Third
                to pay past due interest on the Junior Principal Amount (Part I)
                (including default rate interest);





·
            Fourth
                to pay Senior Principal; and





·
            Fifth
                to pay Junior Principal.





We
      and
      VRM II acquired the senior portion of the loan on July 14, 2005 for
      approximately $15.5 million of which our portion was approximately $5.4 million
      (including accrued interest of approximately $0.5 million).  We and
      VRM II acquired this balance to expedite the foreclosure process and remove
      the
      prior senior lender from its priority position, which had the potential to
      impair the value we may receive at the time the property is sold.  In
      exchange for assistance in expediting the foreclosure process, the lenders
      jointly agreed to release the guarantors from their guaranty of the
      loan.  In March 2007, Vestin Mortgage, Inc. purchased the junior
      principal amount owned by the unrelated third party for
      $500,000.  Vestin Mortgage, Inc. has agreed that any monies it
      receives as a result of payment of the notes or proceeds from a foreclosure
      sale
      are limited to its $500,000 investment in the notes plus expenses.





See
          review report of Independent Registered Public Accounting Firm.
 -
          17
          -
 *Table
          of Contents*


RightStar
      is currently being operated by a court appointed receiver.





Foreclosure
      proceedings are being delayed by the State of Hawaii, which has refused to
      issue
      licenses to potential buyers or the lenders to: (1) operate the facility, (2)
      operate a pre-need program and (3) operate a perpetual care
      program.  During the three months ended March 31, 2006, the State of
      Hawaii notified the lenders of a potential statutory trust fund deficiency,
      estimated to be between $20 million and $30 million and claimed that this
      balance has priority over all lenders.  The lenders dispute the amount
      and priority of this deficit.





In
      April
      2006, the lenders filed suit against the State of Hawaii listing 26 causes
      of
      action, including allegations that the State of Hawaii has illegally blocked
      the
      lender’s right to foreclose and take title to its collateral by inappropriately
      attaching conditions to the granting of licenses needed to operate the business,
      the pre-need trust funds and the perpetual care trust funds and that the State
      of Hawaii has attempted to force the lenders to accept liability for any
      statutory trust fund deficits while no such lender liability exists under the
      laws of the State of Hawaii.  The State of Hawaii responded by filing
      allegations against Vestin Mortgage, Inc. and us alleging that these Vestin
      entities improperly influenced the former RightStar trustees to transfer trust
      funds to us.





On
      May 9,
      2007, The State of Hawaii, VRM I, VRM II, Vestin Mortgage and Comerica
      Incorporated announced that an arrangement has been reached to auction the
      RightStar assets.  On June 12, 2007 the court approved the resolution
      agreement which provides that the proceeds of the foreclosure sale will be
      allocated to fund the trusts statutory minimum balances, and to VRM I, VRM
      II
      and Vestin Mortgage.  The State of Hawaii, VRM I, VRM II, Vestin
      Mortgage and Comerica have pledged to cooperate to recover additional amounts
      owed to the trusts and the creditors from others, while mutually releasing
      each
      other and RightStar from all claims.  The outcome of this auction
      cannot be determined at this time.





We
      have
      evaluated the estimated value of the underlying collateral, the potential trust
      fund deficit, and the expected cost and length of litigation.  Based
      on this estimate we increased our total specific reserve allowance for loss
      by
      approximately $3.0 million during the twelve months ended December 31, 2006
      and
      specifically allocated our general allowance of approximately $0.4 million
      to
      the RightStar loans.  The increase in the reserve allowance included
      approximately $0.5 million for estimated litigation fees and expenses, which
      we
      have incurred in enforcing our rights against the underlying
      collateral.  We will continue to evaluate our position in the
      RightStar loan as the situation progresses.  As of June 30, 2007, our
      specific reserve allowance on the RightStar loans totaled approximately $4.4
      million.





In
      addition, our manager granted extensions on 12 loans pursuant to the terms
      of
      the original loan agreements, which permit extensions by mutual
      consent.  Such extensions are generally provided on loans where the
      original term was 12 months or less and where a borrower requires additional
      time to complete a construction project or negotiate take-out
      financing.  However, our manager only grants extensions when a
      borrower is in full compliance with the terms of the loan, including, but not
      limited to the borrower’s obligation to make interest payments on the
      loan.  Included in the 12 extended loans was the Mid-State Raceway
      loan, which was extended from March 31, 2007 to March 31, 2008.  As
      part of the extension agreement, the borrower made a principal payment of
      approximately $3.0 million, of which our portion was approximately $0.4 million,
      and the loan interest rate increased from 9% to 12%.  The aggregate
      amount due to us from borrowers whose loans had been extended as of June 30,
      2007 was approximately $17.9 million.  Our manager concluded that no
      allowance for loan loss was necessary with respect to these loans as of June
      30,
      2007.





**Asset
      Quality and Loan Reserves**





Losses
      may occur from investing in real estate loans.  The amount of losses
      will vary as the loan portfolio is affected by changing economic conditions
      and
      the financial condition of borrowers.





See
          review report of Independent Registered Public Accounting Firm.
 -
          18
          -
 *Table
          of Contents*


The
      conclusion that a real estate loan is uncollectible or that collectibility
      is
      doubtful is a matter of judgment.  On a quarterly basis, our manager
      evaluates our real estate loan portfolio for impairment.  The fact
      that a loan is temporarily past due does not necessarily mean that the loan
      is
      impaired.  Rather, all relevant circumstances are considered by our
      manager to determine impairment and the need for specific
      reserves.  Such evaluation, which includes a review of all loans on
      which full collectibility may not be reasonably assured, considers among other
      matters:





·
            Prevailing
                economic conditions;





·
            Historical
                experience;





·
            The
                nature and volume of the loan
                portfolio;





·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay;





·
            Evaluation
                of industry trends; and





·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount.





Based
      upon this evaluation, a determination is made as to whether the allowance for
      loan losses is adequate to cover any potential losses.  Additions to
      the allowance for loan losses are made by charges to the provision for loan
      losses.  As of June 30, 2007 and December 31, 2006 approximately $4.9
      million and $3.4 million, respectively, in non-performing loans had no specific
      allowance for loan losses.  As of June 30, 2007 and December 31, 2006,
      approximately $9.3 million, in non-performing loans had a specific allowance
      for
      loan losses of approximately $4.4 million and $4.5 million,
      respectively.  At June 30, 2007, the following loans were
      non-performing (based on current information and events, it is probable that
      we
      will be unable to collect all amounts due according to the contractual terms
      of
      the loan agreement or when the payment of interest is 90 days past due);
      RightStar (Part I & Part II), Monterrey Associates LP, Forest Development
      LLC and Pirates Lake, LTD.  These loans have been placed on
      non-accrual of interest status and are the subject of pending foreclosure
      proceedings.  Our manager evaluated the loans and concluded that the
      underlying collateral was sufficient to protect us against further losses of
      principal or interest.  Our manager will continue to evaluate these
      loans in order to determine if any other allowance for loan losses should be
      recorded.





**NOTE
      E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY**





As
      of
      June 30, 2007, we owned 542,349 shares of VRM II’s common stock, representing
      approximately 1.40% of their total outstanding common stock.





**NOTE
      F — REAL ESTATE HELD FOR SALE**





At
      June
      30, 2007, we held
      one
      property with a total carrying value of approximately $3.3 million, which was
      acquired through foreclosure and recorded as investments in real estate held
      for
      sale.  The summary below includes our percentage ownership in
      the property.  Our investments in real estate held for sale are
      accounted for at the lower of cost or fair value less costs to sell with fair
      value based on appraisals and knowledge of local market
      conditions.  It is not our intent to invest in or own real estate as a
      long-term investment.  We seek to sell properties acquired through
      foreclosure as quickly as circumstances permit.  The following is a
      roll-forward of investments in real estate held for sale during the six months
      ended June 30, 2007:





See
          review report of Independent Registered Public Accounting Firm.
 -
          19
          -
 *Table
          of Contents*





**Description**
            **Date
                Acquired**
            
            **Percentage
                of Ownership**
            
            
            **Balance
                at December 31, 2006**
            
            
            **Acquisitions
                (Reductions)**
            
            
            **Seller
                Financed Sales**
            
            
            **Proceeds
                from Sales**
            
            
            **Gain
                on Sale of Real Estate**
            
            
            **Balance
                at**
              **June
                30, 2007**480
                residential building lots  & 2 family dwellings in Cathedral
                City, CA **(1)**
            12/21/2006
            
            
            12%
            
            
            $
            3,689,000
            
            
            $
            (373,000
            )
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            3,316,000**Total**
            
            
            
            
            
            
            $
            3,689,000
            
            
            $
            (373,000
            )
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            3,316,000





(1)
            During
                November 2006, we, VRM II and Fund III acquired through foreclosure
                proceedings 480 residential building lots and two single family dwellings
                in Rio Vista Village Subdivision in Cathedral City, CA.  As of
                June 30, 2007, our manager evaluated the carrying value of the acquired
                property and based on its estimate, our manager has written down
                the value
                of the property $3,000,000, of which our portion was
                $373,000.





**NOTE
      G — REAL ESTATE HELD FOR SALE – SELLER FINANCED**





At
      June
      30, 2007, we held an interest in one****property with a total
      carrying value of approximately $7.9 million, which had been sold in a
      transaction where we provided the financing to the purchaser.  GAAP
      requires us to include these properties in real estate held for sale until
      the
      borrower has met and maintained certain requirements.  We may share
      ownership of such properties with VRM II, Fund III, our manager, or other
      related and/or unrelated parties.  The summary below includes our
      percentage of ownership in the property held during the six months ended June
      30, 2007.  These investments in real estate held for sale are
      accounted for at the lower of cost or fair value less costs to sell with fair
      value based on appraisals and knowledge of local market
      conditions.  The following is a roll-forward of seller financed real
      estate held for sale for the six months ended June 30, 2007:





**Description**
            **Date
                Acquired**
            
            **Percentage
                of Ownership**
            
            
            **Balance
                at December 31, 2006**
            
            
            **Acquisitions**
            
            
            **Sales**
            
            
            **Gain
                (Loss) on Sale**
            
            
            **Balance
                at**
              **June
                30, 2007**Assisted
                living facility in Las Vegas, Nevada **(1)**
            9/23/2004
            
            
            52%
            
            
            $
            7,911,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            7,911,000$
            7,911,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            7,911,000





**(1)**
            During
                September 2004, we and VRM II sold an assisted living facility in
                Las
                Vegas, NV and financed 100% of the purchase price of approximately
                $15.3
                million maturing in September 2007.  The transaction resulted in
                no gain or loss.  As of June 30, 2007, we had received
                approximately $1.5 million in payments from the borrower.  These
                principal and interest payments are recorded as a deposit
                liability.  Interest payments will be recognized as income once
                the equity requirement has been met or the loan is paid in
                full.





Until
      borrowers have met the minimum equity ownership requirement to allow us to
      record a sale, we will record payments received under the deposit method or
      the
      cost recovery method, which ever is applicable in accordance with FAS
      66.





**NOTE
      H — RELATED PARTY TRANSACTIONS**





From
      time
      to time, we may acquire or sell investments in real estate loans from/to our
      manager or other related parties pursuant to the terms of our Management
      Agreement provided the price does not exceed the par value of the
      loan.  No gain or loss is recorded on these transactions, as it is not
      our intent to make a profit on the purchase or sale of such
      investments.  The purpose is generally to diversify our portfolio by
      syndicating loans, thereby providing us with additional capital to make
      additional loans.





**Transactions
      with the Manager**





See
          review report of Independent Registered Public Accounting Firm.
 -
          20
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 *Table
          of Contents*


Our
      manager is entitled to receive from us an annual management fee of up to 0.25%
      of our aggregate capital contributions received by us and Fund I from the sale
      of shares or membership units, paid monthly.  The amount of management
      fees paid to our manager for the three and six months ended June 30, 2007 and
      2006 was $69,000 and $138,000, respectively for each period.





As
      of
      June 30, 2007, our manager owned 100,000 of our common shares.  For
      the three and six months ended June 30, 2007, we declared approximately $14,000
      and $28,000, respectively, in dividends payable to our manager based on the
      number of shares our manager held on the dividend record
      dates.  During the four months ended April 30, 2006, we recorded
      pro-rata distributions owed to our manager of $25,000 and no dividends were
      declared during the two months ended June 30, 2006.





**Transactions
      with Other Related Parties**





As
      of
      June 30, 2007, we owned 542,349 common shares of VRM II, representing
      approximately 1.40% of their total outstanding common stock.  For the
      three and six months ended June 30, 2007, we recognized $68,000 and $105,000,
      respectively, in dividend income from VRM II based on the number of shares
      we
      held on the dividend record dates.





As
      of
      June 30, 2007, VRM II owned 511,025 of our common shares, representing
      approximately 7.44% of our total outstanding common stock.  For the
      three and six months ended June 30, 2007, we declared approximately $66,000
      and
      $126,000, respectively, in dividends payable to VRM II based on the number
      of
      shares VRM II held on the dividend record dates.





During
      the six months ended June 30, 2006, we sold $1.2 million in real estate loans
      to
      VRM II and bought $0.5 million in real estate loans from VRM II.  No
      gain or loss resulted from these transactions.





As
      of
      June 30, 2007, we owed to related parties, under common management, $35,000
      and
      as of December 31, 2006, we had receivables from a related party, under common
      management, of $1,000.





During
      the three and six months ended June 30, 2007, we incurred $10,000 and $19,000,
      respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
      which the Secretary of Vestin Group has an equity ownership interest in the
      law
      firm.  During the three and six months ended June 30, 2006, we
      incurred $15,000 and $26,000, respectively, for legal fees to the law firm
      of
      Levine, Garfinkel & Katz.





**NOTE
      I — NOTES RECEIVABLE**





During
      October 2004, we and VRM II sold the Castaways Hotel/Casino in Las Vegas, Nevada
      of which our portion of the net cash proceeds was $2,118,000.  We
      originally sold this property under a 100% seller financing
      arrangement.  The borrowers then sold the property to an unrelated
      third party that resulted in a payoff of the note and also allowed us to record
      the sale and remove the asset from seller financed real estate held for
      sale.  In addition, during September 2004, we received a promissory
      note from the guarantors of the loan in the amount of $160,000 in exchange
      for a
      release of their personal guarantees.  Since payments on the note did
      not begin for 18 months from the date of the note, we discounted the face value
      of the note to $119,000, which is based on a discount rate of 8% as of that
      date.  As of June 30, 2007, we have received $25,000 in principal
      payments.  The outstanding balance as of June 30, 2007, was $102,000,
      net of allowance of $41,000.





During
      March 2005, we and VRM II sold the 126 unit hotel in Mesquite, Nevada for
      $5,473,000 of which our share of the proceeds were approximately $1.8 million,
      which resulted in a loss of $389,000.  In addition, during June 2005,
      we and VRM II entered into a settlement agreement with the guarantors of the
      loan in the amount of $2,000,000 in exchange for a release of their personal
      guarantees of which our share was $640,000.  The balance is secured by
      a second deed of trust and is payable in a first installment of $100,000 due
      in
      July 2005 and monthly interest only payments of 5% on $1,100,000 from July
      2005
      through July 2008, at which time the entire balance is due.  As of
      June 30, 2007, we have received $288,000 in principal
      payments.  Payments will be recognized as income when
      received.  The balance of $352,000 is fully reserved as of June 30,
      2007.





See
          review report of Independent Registered Public Accounting Firm.
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          21
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          of Contents*


During
      November 2004, we and VRM II sold the 140 Unit/224 beds senior facility in
      Mesa,
      Arizona of which our portion of the consideration received totaled
      $1,009,000.  We and VRM II received a promissory note from the
      original guarantor in the amount of $478,000 of which our portion was
      $67,000.  The promissory note is payable in interest only payments of
      8% on the principal balance outstanding.  From June 25, 2005 through
      May 25, 2006, monthly payments increased to $15,000 and were applied to
      principal and accrued interest.  Beginning June 25, 2006 through May
      25, 2009, payments are to increase to $20,000 monthly.  Due to the
      uncertainty of collectibility, we have provided a valuation allowance for the
      entire remaining balance of the promissory note.  Income will be
      recognized when payments are received.  As of June 30, 2007, we
      received $28,000 in principal payments.  The balance of $31,000 is
      fully reserved as of June 30, 2007.





During
      December 2005, we and VRM II sold the 460 acre residential subdivision in Lake
      Travis, TX for approximately $5.5 million, of which our portion was
      approximately $1.8 million.  The purchase price included cash proceeds
      of $5 million and a $500,000 note receivable with an imputed interest rate
      of 8%
      in July 2006.  A net gain of $71,000 resulted in this transaction, of
      which our portion was $24,000.  The purchaser has defaulted on the
      note and our manager pursued litigation.  During the six months ended
      June 30, 2007, we and VRM II entered into a settlement agreement, which reduced
      the note to $175,000, of which our portion is $60,000.  The balance of
      $60,000 is fully reserved as of June 30, 2007.





During
      2006, we and VRM II entered into a settlement agreement in the amount of $1.5
      million with the guarantors of a loan that we foreclosed on.  Our
      portion was approximately $137,000.  The promissory noted is payable
      in seven annual installments of $100,000 with an accruing interest rate of
      7%,
      with the remaining note balance due in April 2013.  The balance of
      approximately $137,000 is fully reserved as of June 30, 2007.





**NOTE
      J— SECURED BORROWINGS**





Secured
      borrowings provide an additional source of capital for our lending
      activity.  Secured borrowings allow us to increase the diversification
      of our loan portfolio and to invest in loans that we might not otherwise invest
      in.  We do not receive any fees for entering into secured borrowing
      arrangements; however, we may receive revenue in any differential of the
      interest spread, if applicable.  Loans in which unaffiliated investors
      have participated through inter-creditor agreements (“Inter-creditor
      Agreements”) are accounted for as secured borrowings in accordance with
      Statement of Financial Accounting Standards (“FAS”) 140 – *Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor Agreements provide us additional
      funding sources for real estate loans whereby an unaffiliated investor (the
      “Investor”) may participate on a non-pari passu basis in certain real estate
      loans with us and/or VRM II and/or Fund III (collectively, the “Lead
      Lenders”).  In the event of borrower non-performance, the
      Inter-creditor Agreements generally provide that the Lead Lenders must repay
      the
      Investor’s loan amount either by (i) continuing to remit to the Investor the
      interest due on the participated loan amount; (ii) substituting an alternative
      loan acceptable to the Investor; or (iii) repurchasing the participation from
      the Investor for the outstanding balance plus accrued interest.





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements.  In the event of borrower non-performance,
      the Participation Agreement may allow the Investor to be repaid up to the amount
      of the Investor’s investment prior to the Lead Lender being
      repaid.  Real estate loan financing under the Participation Agreements
      are also accounted for as a secured borrowing in accordance with FAS
      140.  We do not receive any revenues for entering into secured
      borrowings arrangements.





During
      October 2006, we, our manager, Vestin Origination, Inc., VRM II and Fund III
      entered into an intercreditor agreement with an unrelated third party related
      to
      the funding of a construction real estate loan.  (See exhibit 10.8
      Intercreditor Agreement  under the Exhibit Index included in Part II –
Other Information, Item 6 Exhibits of this Report Form 10-Q).  The
      secured borrowing was recognized pro rata between us, VRM II and Fund III for
      the amount each entity has funded for the loan.  During May 2007, the
      secured borrowings were paid in full.  As of June 30, 2007, we did not
      have any funds used under Inter-creditor Agreements as compared to approximately
      $310,000 used under Inter-creditor Agreements as of December 31,
      2006.





See
          review report of Independent Registered Public Accounting Firm.
 -
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          of Contents*


**NOTE
      K — NOTE PAYABLE**





In
      May
      2007, we financed a 12-month insurance policy for Directors and Officers
      liability, with an annual interest rate of 7.25%.  The agreement
      required a down payment of $34,000 and nine monthly payments of $21,000
      beginning on May 27, 2007.  As of June 30, 2007, the outstanding
      balance of the note was approximately $145,000.





In
      addition, as of June 30, 2007, we had borrowings from a margin account
      collateralized by securities held at a brokerage firm totaling approximately
      $3,000.





**NOTE
      L — RECENT ACCOUNTING PRONOUNCEMENTS**





In
      February 2007, the Financial Accounting Standards Board (FASB) issued FAS 159,
      *The Fair Value Option for Financial Assets and Financial
      Liabilities*.  FAS 159 permits entities to choose to measure
      financial assets and liabilities (except for those that are specifically scoped
      out of the Statement) at fair value.  The election to measure a
      financial asset or liability at fair value can be made on an
      instrument-by-instrument basis and is irrevocable.  The difference
      between carrying value and fair value at the election date is recorded as a
      transition adjustment to opening retained earnings.  Subsequent
      changes in fair value are recognized in earnings.  The effective date
      for FAS 159 is as of the beginning of an entity's first fiscal year that begins
      after November 15, 2007.  We are evaluating FAS 159 and have not yet
      determined the impact the adoption will have on our consolidated financial
      statements, but it is not expected to be significant.





**NOTE
      M — LEGAL MATTERS INVOLVING THE MANAGER**





The
      United States Securities and Exchange Commission (the “Commission”), conducted
      an investigation of certain matters related to us, our manager, Vestin Capital,
      VRM II and Fund III.  We fully cooperated during the course of the
      investigation.  On September 27, 2006, the investigation was resolved
      through the entry of an Administrative Order by the Commission (the
“Order”).  Our manager, Vestin Mortgage and its Chief Executive
      Officer, Michael Shustek, as well as Vestin Capital (collectively, the
“Respondents”), consented to the entry of the Order without admitting or denying
      the findings therein.  In the Order, the Commission finds that the
      Respondents violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of
      1933 through the use of certain slide presentations in connection with the
      sale
      of units in Fund III and in Fund II, the predecessor to VRM II.  The
      Respondents consented to the entry of a cease and desist order, the payment
      by
      Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from association
      with any broker or dealer for a period of six months, which expired in March
      2007.  In addition, the Respondents agreed to implement certain
      undertakings with respect to future sales of securities.  We are not a
      party to the Order and we do not expect that the sanctions imposed upon the
      Respondents will have any material affect upon our operations.





VRM
      II
      and Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
      action filed in San Diego Superior Court by certain plaintiffs who allege,
      among
      other things, that they were wrongfully denied appraisal rights in connection
      with the merger of Fund II into Vestin Realty Mortgage II, Inc.  The
      action is being brought as a purported class action on behalf of all members
      of
      Vestin Fund II who did not vote in favor of the merger.  The
      Defendants believe that the allegations are without merit and that they have
      adequate defenses.  The Defendants intend to undertake a vigorous
      defense.  The terms of our management agreement and Fund II’s Operating
      Agreement contain indemnity provisions whereby, Vestin Mortgage and Michael
      V.
      Shustek may be eligible for indemnification by VRM II with respect to the above
      actions.





VRM
      II,
      Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
      civil action filed by 88 separate plaintiffs (“Plaintiffs”) in District Court
      for Clark County, Nevada.  The Plaintiffs allege, among other things,
      that Defendants: breached certain alleged contractual obligations owed to
      Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
      misrepresented or omitted material facts regarding the conversion of Fund II
      into VRM II.  The action seeks monetary damages and a rescission of
      the REIT conversion.  The Defendants believe that the allegations are
      without merit and that they have adequate defenses.  The Defendants
      intend to undertake a vigorous defense.  The terms of VRM II’s
      management agreement and Fund II’s operating agreement contain indemnity
      provisions whereby, Vestin Mortgage and Michael V. Shustek may be eligible
      for
      indemnification by VRM II with respect to the above actions.





See
          review report of Independent Registered Public Accounting Firm.
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          23
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In
      addition to the matters described above, our manager is involved in a number
      of
      other legal proceedings concerning matters arising in connection with the
      conduct of its business activities.  Our manager believes it has
      meritorious defenses to each of these actions and intends to defend them
      vigorously.  Other than the pending state court litigation involving
      Desert Land as further described below and the matters described in Note N
–
*Legal Matters Involving the Company* below, our manager believes that it
      is not a party to any pending legal or arbitration proceedings that would have
      a
      material adverse effect on our manager’s financial condition or results of
      operations or cash flows, although it is possible that the outcome of any such
      proceedings could have a material impact on the manager’s net income in any
      particular period.





**NOTE
      N — LEGAL MATTERS INVOLVING THE COMPANY**





On
      November 21, 2005, Desert Land filed a complaint in the state District court
      of
      Nevada against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which
      complaint is substantially similar to a complaint previously filed by Desert
      Land in the United States District Court, which complaint was dismissed by
      the
      Ninth Circuit United Court of Appeals, which dismissal was upheld when the
      United States Supreme Court denied Desert Land’s Writ of
      Certiorari.  The action is based upon allegations that Del Mar
      Mortgage, Inc and/or Vestin Mortgage charged unlawful fees on various loans
      arranged by them in 1999.  On March 6, 2006, Desert Land amended the
      state court complaint to name us.  Desert Land alleges that one or
      more of the defendants have transferred assets to other entities without
      receiving reasonable value therefore; alleges plaintiffs are informed and
      believe that defendants have made such transfers with the actual intent to
      hinder, delay or defraud Desert Land; that such transfers made the transferor
      insolvent and that sometime between February 27 and April 1, 2003, Vestin Group
      transferred $1.6 million to VRM I for that purpose.  The state court
      complaint further alleges that Desert Land is entitled to avoid such transfers
      and that pursuant to NRS 112.20, Desert Land is entitled to an injunction to
      enjoin defendants from further disposition of assets.  Additionally,
      Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for
      any
      losses and expenses in connection with the action, and Mr. Shustek has
      guaranteed the indemnification.  The Defendants believe that the
      allegations are without merit and that they have adequate
      defenses.  The Defendants intend to undertake a vigorous
      defense.





In
      April
      2006, the lenders filed suit against the State of Hawaii listing 26 causes
      of
      action, including allegations that the State of Hawaii has illegally blocked
      the
      lender’s right to foreclose and take title to its collateral by inappropriately
      attaching conditions to the granting of licenses needed to operate the business,
      the pre-need trust funds and the perpetual care trust funds and that the State
      of Hawaii has attempted to force the lenders to accept liability for any
      statutory trust fund deficits while no such lender liability exists under the
      laws of the State of Hawaii.  The State of Hawaii responded by filing
      allegations against Vestin Mortgage, Inc. and VRM II alleging that these Vestin
      entities improperly influenced the former RightStar trustees to transfer trust
      funds to VRM II.





On
      May 9,
      2007, The State of Hawaii, VRM I, VRM II, Vestin Mortgage and Comerica
      Incorporated announced that an arrangement has been reached to auction the
      RightStar assets.  On June 12, 2007 the court approved the resolution
      agreement which provides that the proceeds of the foreclosure sale will be
      allocated to fund the trusts statutory minimum balances, and to VRM I, VRM
      II
      and Vestin Mortgage.  The State of Hawaii, VRM I, VRM II, Vestin
      Mortgage and Comerica have pledged to cooperate to recover additional amounts
      owed to the trusts and the creditors from others, while mutually releasing
      each
      other and RightStar from all claims.  The outcome of this auction
      cannot be determined at this time.





We
      and
      Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
      action filed in San Diego Superior Court by certain plaintiffs who allege,
      among
      other things, that they were wrongfully denied appraisal rights in connection
      with the merger of Fund I into Vestin Realty Mortgage I, Inc.  The
      action is being brought as a purported class action on behalf of all members
      of
      Vestin Fund I who did not vote in favor of the merger.  The Defendants
      believe that the allegations are without merit and that they have adequate
      defenses.  The Defendants intend to undertake a vigorous
      defense.  The terms of our management agreement and Fund I’s Operating
      Agreement contain indemnity provisions whereby, Vestin Mortgage and Michael
      V.
      Shustek may be eligible for indemnification by us with respect to the above
      actions.





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          review report of Independent Registered Public Accounting Firm.
 -
          24
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We,
      Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
      civil action filed by 25 separate plaintiffs (“Plaintiffs”) in District Court
      for Clark County, Nevada.  The Plaintiffs allege, among other things,
      that Defendants: breached certain alleged contractual obligations owed to
      Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
      misrepresented or omitted material facts regarding the conversion of Fund I
      into
      VRM I.  The action seeks monetary damages, punitive damages and
      rescission.  The Defendants believe that the allegations are without
      merit and that they have adequate defenses.  The Defendants intend to
      undertake a vigorous defense.  The terms of VRM I’s management
      agreement and Fund I’s operating agreement contain indemnity provisions whereby,
      Vestin Mortgage and Michael V. Shustek may be eligible for indemnification
      by
      VRM I with respect to the above actions.





In
      addition to the matters described above, we are involved in a number of other
      legal proceedings concerning matters arising in connection with the conduct
      of
      our business activities.  We believe we have meritorious defenses to
      each of these actions and intend to defend them vigorously.  Other
      than the matters described above, we believe that we are not a party to any
      pending legal or arbitration proceedings that would have a material adverse
      effect on our financial condition or results of operations or cash flows,
      although it is possible that the outcome of any such proceedings could have
      a
      material impact on our net income in any particular period.





**NOTE
      O — DIVIDEND REQUIREMENT**





To
      maintain our status as a REIT, we are required to make dividend distributions,
      other than capital gain dividends, to our stockholders each year in an amount
      at
      least equal to (1) the sum of (a) 90% of our taxable income, computed without
      regards to the dividends paid deduction and our net capital gain, and (b) 90%
      of
      the net income, after tax, from foreclosure property, minus (2) the sum of
      certain specified items of non-cash income over 5% of our REIT taxable
      income.  All dividend distributions will be made at the discretion of
      our Board of Directors and will depend on our earnings, both tax and GAAP,
      financial condition, maintenance of REIT status and such other factors as the
      Board of Directors deems relevant.





**NOTE
      P — SUBSEQUENT EVENTS**





On
      July
      23, 2007, the Board of Directors declared a monthly cash dividend of $0.047
      per
      share for the month of July 2007, that will be paid on August 30, 2007, to
      the
      stockholders of record as of August 9, 2007.





On
        August
        7, 2007, we, VRM II and Fund III entered into a settlement agreement with
        the
        borrower of Pirates Lake, LTD. whereby the foreclosure was
        postponed.  Principal, accrued interest and $75,000 for expenses
        incurred by us, VRM II and Fund III relating to the loan is now due on October
        1, 2007.


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REPORT
      OF
INDEPENDENTREGISTERED PUBLIC ACCOUNTING
      FIRM








To
      the
      Board of Directors and Stockholders of Vestin Realty Mortgage I,
      Inc.:





We
      have
      reviewed the accompanying consolidated balance sheet of Vestin Realty Mortgage
      I, Inc. and its subsidiary as of June 30, 2007, the related consolidated
      statements of operations for the three-month and six-month periods ended
      June 30, 2007 and 2006, the related consolidated statement of equity and other
      comprehensive income for the six-month period ended June 30, 2007 and the
      related consolidated statements of cash flows for the six-month periods ended
      June 30, 2007 and 2006. All information included in these consolidated financial
      statements is the representation of the management of Vestin Realty Mortgage
      I,
      Inc.





We
      conducted our review in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting
      matters.  It is substantially less in scope than an audit conducted in
      accordance with the standards of the Public Company Accounting Oversight Board,
      the objective of which is the expression of an opinion regarding the
      consolidated financial statements taken as a whole.  Accordingly, we
      do not express such an opinion.





Based
      on
      our review, we are not aware of any material modifications that should be made
      to the accompanying consolidated financial statements referred to above for
      them
      to be in conformity with accounting principles generally accepted in the United
      States of America.





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      of
      Vestin Realty Mortgage I, Inc. as of December 31,  2006 and the
      related consolidated statements of operations, equity and other
      comprehensive income and cash flows for the twelve months ended December 31,
      2006, management’s assessment of the effectiveness of the internal control over
      financial reporting as of December 31, 2006 and the effectiveness of the
      internal control over financial reporting as of December 31, 2006, and in our
      report dated March 12, 2007, we expressed an unqualified opinion on those
      consolidated financial statements; an unqualified opinion on management’s
      assessment of, and an unqualified  opinion on the effective operation
      of internal control over financial reporting. The consolidated financial
      statements and management’s assessment of the effectiveness of internal control
      over financial reporting referred to above are not presented herein. In our
      opinion, the information set forth in the accompanying consolidated balance
      sheet as of December 31, 2006, is fairly stated, in all material respects,
      in
      relation to the consolidated balance sheet from which it has been
      derived.











/s/Moore
      Stephens Wurth Frazer and Torbet, LLP








Orange,
      California


August
      6,
      2007








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**ITEM
                2.**
            **MANAGEMENT’SDISCUSSION
                AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS**





The
      following is a financial review and analysis of our financial condition and
      results of operations for the three and six months ended June 30, 2007 and
      2006.  This discussion should be read in conjunction with our
      consolidated financial statements and accompanying notes and other detailed
      information regarding us appearing elsewhere in this report on Form
      10-Q.





**FORWARD
      LOOKING STATEMENTS**





Certain
      statements in this report, including, without limitation, matters discussed
      under this Item 2, “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations,” should be read in conjunction with the consolidated
      financial statements, related notes, and other detailed information included
      elsewhere in this report on Form 10-Q.  We are including this
      cautionary statement to make applicable and take advantage of the safe harbor
      provisions of the Private Securities Litigation Reform Act of
      1995.  Statements that are not historical fact are forward-looking
      statements.  Certain of these forward-looking statements can be
      identified by the use of words such as “believes,” “anticipates,” “expects,”
“intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,”
or other similar expressions.  Such forward-looking statements involve
      known and unknown risks, uncertainties and other important factors, which could
      cause actual results, performance or achievements to differ materially from
      future results, performance or achievements.  These forward-looking
      statements are based on our current beliefs, intentions and
      expectations.  These statements are not guarantees or indicative of
      future performance.  Important assumptions and other important factors
      that could cause actual results to differ materially from those forward-looking
      statements include, but are not limited to, those factors, risks and
      uncertainties described in Item 1A of this report on Form 10-Q for the six
      months ended June 30, 2007 and in our other securities filings with the
      Securities and Exchange Commission.  Our future financial condition
      and results of operations, as well as any forward-looking statements, are
      subject to change and involve inherent risks and uncertainties.  The
      forward-looking statements contained in this report are made only as of the
      date
      hereof.  We undertake no obligation to update or revise information
      contained herein to reflect events or circumstances after the date hereof or
      to
      reflect the occurrence of unanticipated events.





**RESULTS
      OF OPERATIONS**





**OVERVIEW**





Our
      primary business objective is to generate income by investing in real estate
      loans.  We believe there is a significant market opportunity to make
      real estate loans to owners and developers of real property whose financing
      needs are not met by other financial institutional real estate
      lenders.  The loan underwriting standards utilized by our manager and
      Vestin Originations are less strict than other financial institutional real
      estate lenders.  In addition, one of our competitive advantages is our
      ability to approve loan applications more quickly than other financial
      institutional lenders.  As a result, in certain cases, we may make
      real estate loans that are riskier than real estate loans made by other
      financial institutional lenders such as commercial banks.  However, in
      return, we seek a higher interest rate and our manager takes steps to mitigate
      the lending risks such as imposing a lower loan to value ratio.  While
      we may assume more risk than other financial institutional real estate lenders,
      in return, we seek to generate higher yields from our real estate
      loans.





Our
      operating results are affected primarily by: (i) the amount of capital we have
      to invest in real estate loans, (ii) the level of real estate lending activity
      in the markets we service, (iii) our ability to identify and work with suitable
      borrowers, (iv) the interest rates we are able to charge on our loans and (v)
      the level of non-performing assets, foreclosures and related loan losses which
      we may experience.  Our capital, subject to a 3% reserve, will
      constitute the bulk of the funds we have available for investment in real estate
      loans.  We do not have any arrangements in place to materially
      increase the funds we will have available to invest from any other
      sources.  See discussion under – “Capital and Liquidity.”





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Our
      operating results during the past several years have been adversely affected
      by
      allowances for non-performing loans.  At June 30, 2007, the following
      loans were non-performing (based on current information and events, it is
      probable that we will be unable to collect all amounts due according to the
      contractual terms of the loan agreement or when the payment of interest is
      90
      days past due); RightStar (Part I & Part II), Monterrey Associates LP,
      Forest Development LLC and Pirates Lake, LTD.  These loans are
      currently carried on our books at a value of approximately $9.8 million, net
      of
      allowance for loan losses of approximately $4.4 million for the RightStar
      loans.  These loans have been placed on non-accrual of interest status
      and are the subject of pending foreclosure proceedings.  On
      August
      7, 2007, we, VRM II and Fund III entered into a settlement agreement with the
      borrower of Pirates Lake, LTD. whereby the foreclosure was
      postponed.  Principal, accrued interest and $75,000 for expenses
      incurred by us, VRM II and Fund III relating to the loan is now due on October
      1, 2007.  For additional information, see “Specific Loan Allowance”
in Note D – *Investments In Real Estate Loans* of the Notes to the
      Consolidated Financial Statements included in Item 1 *Consolidated Financial
      Statements* of this report Form 10-Q.  Non-performing assets, net
      of allowance for loan losses, totaled approximately $13.1 million or 20% of
      our
      total assets as of June 30, 2007, as compared to approximately $11.8 million
      or
      18% of our total assets as of December 31, 2006.  At June 30, 2007,
      non-performing assets consisted of approximately $3.3 million of real estate
      held for sale not sold through seller financing and approximately $9.8 million
      of non-performing loans, net of allowance for loan losses.  In
      addition, during the six months ended June 30, 2007, our manager evaluated
      the
      carrying value of the acquired properties located in Cathedral City, CA and
      based on its estimate, our manager has written down the value of the property
      by
      $3,000,000, of which our portion was $373,000.





The
      level
      of non-performing assets may reflect the continuing weakness in certain sectors
      of the economy and the risk inherent in our business strategy that entails
      more
      lenient underwriting standards and expedited loan approval
      procedures.  If the economy weakens and our borrowers who develop and
      sell commercial real estate projects are unable to complete their projects
      or
      obtain takeout financing or are otherwise adversely impacted, we may experience
      an increase in loan defaults, which may reduce the amount of funds we have
      to
      pay dividends to our stockholders.  Such conditions may also require
      us to restructure loans.  The weighted average term of our outstanding
      loans, including extensions and loans related to seller financed real estate
      held for sale, as of June 30, 2007 and December 31, 2006 was 20 and 19 months,
      respectively.





Uncertain
      economic conditions during the next year could have a material impact on the
      collectibility of our loans.  A downturn in the real estate markets
      where we conduct business might increase defaults on our loans and might require
      us to record additional reserves with respect to non-performing
      loans.  To date, the problems experienced by some lenders in the
      sub-prime residential mortgage market have not had any material adverse affect
      upon the commercial mortgage markets in which we
      operate.  Nonetheless, we are aware that weakness in residential
      lending could at some point have an adverse impact upon our
      markets.  Recognizing the risk, we seek to maintain an adequate
      loan-to-value ratio, including loans related to seller financed real estate
      held
      for sale, which, as of June 30, 2007, was 74.55% on a weighted average basis,
      generally using appraisals prepared on an “as-if developed basis” in connection
      with the loan origination.  The increase in the weighted average loan
      to value ratio from 71.35%, as of December 31, 2006, to 74.55%, as of June
      30,
      2007, is primarily due to five loans that were funded during the six months
      ended June 30, 2007, totaling $4.1 million, with loan to value ratios ranging
      from 71.79% to 80.00%.  The majority of these loans were to repeat
      borrowers with a history of good standing with us.  In addition, the
      original terms of these loans were 12 months or less.  We hope to
      retain sufficient cushion in the underlying equity position to protect the
      value
      of our loans in the event of a default.  Nevertheless, no assurances
      can be given that a marked increase in loan defaults accompanied by a rapid
      decline in real estate values will not have a material adverse effect upon
      our
      financial condition and operating results.





From
      time
      to time, we may acquire or sell investments in real estate loans from/to our
      manager or other related parties pursuant to the terms of our Management
      Agreement provided the price does not exceed the par value of the
      loan.  No gain or loss is recorded on these transactions, as it is not
      our intent to make a profit on the purchase or sale of such
      investments.  The purpose is generally to diversify our portfolio by
      syndicating loans, thereby providing us with additional capital to make
      additional loans.  For further information regarding related party
      transactions, refer to Note H – Related Party Transactions in the notes to our
      consolidated financials statements in Item 1 *Consolidated Financial
      Statements* in Part I of this report Form 10-Q.





As
      of
      June 30, 2007, our loans were in the following states: Arizona, California,
      Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington.





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**Comparison
      of Operating Results for the three and six months ended June 30, 2007 to the
      three and six months ended June 30, 2006.**





**For
                the Three Months**
              **Ended
                June 30,**
            
            
            **For
                the Six Months**
              **Ended
                June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            $
            1,568,000
            
            
            $
            1,097,000
            
            
            $
            2,906,000
            
            
            $
            2,261,000Operating
                expenses
            
            
            430,000
            
            
            
            279,000
            
            
            
            761,000
            
            
            
            3,719,000Income
                (loss) from real estate held for sale
            
            
            (404,000
            )
            
            
            (1,000
            )
            
            
            (369,000
            )
            
            
            (17,000
            )Income
                (loss)before provision for income taxes
            
            
            734,000
            
            
            
            817,000
            
            
            
            1,776,000
            
            
            
            (1,475,000
            )Provision
                for income taxes
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Net
                income (loss)
            
            $
            734,000
            
            
            $
            817,000
            
            
            $
            1,776,000
            
            
            $
            (1,475,000
            )Basic
                and diluted earnings per common share
            
            $
            0.11
            
            
            $
            0.08
            
            
            
            0.26
            
            
            $
            0.08Net
                income (loss) allocated to members per weighted average membership
                units
            
            
            
            
            
            $
            0.04
            
            
            
            
            
            
            $
            (0.29
            )Dividends
                declared per common share / cash distributions per membership
                unit
            
            $
            0.14
            
            
            $
            0.10
            
            
            
            0.29
            
            
            $
            0.26Weighted
                average common shares / membership units
            
            
            6,871,260
            
            
            
            6,867,957
            
            
            
            6,870,813
            
            
            
            6,896,712Weighted
                average term of outstanding loans, including extensions
            
            20
                months
            
            
            20
                months
            
            
            20
                months
            
            
            20
                months





*Comparison
      of Operating Results for the three months ended June 30, 2007 to the three
      months ended June 30, 2006*.





*Total
      Revenues*:  For the three months ended June 30, 2007 total
      revenues increased by approximately $471,000 or 42.9% compared to the same
      period in 2006 due in significant part to the following factors:





·
            Interest
                income from investments in real estate loans increased approximately
                $173,000 during the three months ended June 30, 2007 compared to
                the same
                period in 2006, largely as a result of higher interest
                rates.  Our revenue is dependent upon the balance of our
                investment in real estate loans and the interest earned on these
                loans.  As of June 30, 2007, our investment in real estate
                loans, including loans related to seller financed real estate held
                for
                sale, was approximately $59.1 million with a weighted average interest
                rate of 11.10%.  As of June 30, 2006, our investment in real
                estate loans, including loans related to seller financed real estate
                held
                for sale, was approximately $57.8 million with a weighted average
                interest
                rate of 9.8%.





·
            During
                the three months ended June 30, 2007, we earned approximately $159,000
                in
                other income from principal payments on notes receivable that were
                fully
                reserved and approximately $141,000 as the result of a legal
                settlement.





*Total
      Operating Expenses*:  For the three months ended June 30, 2007,
      total operating expenses were $430,000 compared to approximately $279,000 during
      the three months ended June 30, 2006, an increase of approximately $151,000
      or
      54.1%.  Expenses were primarily affected by the following
      factors:





·
            Professional
                fees increased approximately $91,000 primarily due to an increase
                in legal
                fees relating to several legal actions filed with respect to the
                REIT
                conversion.  See Note N – Legal Matters Involving The Company of
                the Consolidated Financial Statements included in Part I, Item 1*Consolidated Financial Statements*of this Interim Report Form
                10-Q.





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·
            During
                the three months ended June 30, 2007, we incurred an increase of
                approximately $30,000 in expenses related to the annual stockholders
                meeting and public filing expenses, including nasdaq fees, compared
                to the
                same period in 2006.





*Total
      Income(Loss) from Real Estate Held for Sale*:  For the three
      months ended June 30, 2007, total loss from real estate held for sale was
      $404,000 compared to a loss of $1,000 during the same period in
      2006.  During the three months ended June 30, 2007, our manager
      evaluated the carrying value of the acquired property located in Cathedral
      City,
      CA and based on its estimate, our manager has written down the value of the
      property by $3,000,000, of which our portion was $373,000.  See Note F
– *Real Estate Held for Sale* in the notes of Part I, Item 1 -
*Consolidated Financial Statements* to this interim report Form
      10-Q.





*Comparison
      of Operating Results for the six months ended June 30, 2007 to the six months
      ended June 30, 2006*


*Total
      Revenues*:





For
      the
      six months ended June 30, 2007 total revenues increased by approximately
      $645,000 or 28.5% compared to the same period in 2006 due in significant part
      to
      the following factors:





·
            Interest
                income from investments in real estate loans increased approximately
                $244,000 during the six months ended June 30, 2007 compared to the
                same
                period in 2006, largely as a result of the higher interest rates
                referred
                to above.





·
            During
                the six months ended June 30, 2007, we recognized approximately $105,000
                in dividend income from investment in a related party.  We had
                no comparable income during the same period in
                2006.





·
            During
                the six months ended June 30, 2007, we earned approximately $258,000
                in
                other income from principal payments on notes receivable that were
                fully
                reserved, in addition to the legal settlement referred to
                above.  During the same period 2006, we recognized approximately
                $13,000 of revenues from comparable
                sources.





*Total
      Operating Expenses*:  For the six months ended June 30, 2007,
      total operating expenses were $761,000 compared to approximately $3.7 million
      during the six months ended June 30, 2006, a decrease of approximately $3.0
      million or 79.5%.  Expenses were primarily affected by the following
      factor:





·
            During
                the 2006 period, we recognized a provision for loan loss of $3 million
                related to the loans secured by 4 cemeteries and 8 mortuaries in
                Hawaii.  See “Specific Loan Allowance” in Note D –
                *Investments In Real Estate Loans* of the Notes to the Consolidated
                Financial Statements included in Part I, Item 1*Consolidated Financial
                Statements*of this Interim Report Form 10-Q.  There was no
                comparable loan loss provision in the six months ended June 30,
                2007.





*Total
      Income(Loss) from Real Estate Held for Sale*:  For the six months
      ended June 30, 2007, total income from real estate held for sale was $369,000
      compared to a loss of $17,000 during the same period in 2006.  During
      the three months ended June 30, 2007, our manager evaluated the carrying value
      of the acquired property located in Cathedral City, CA and based on its
      estimate, our manager has written down the value of the property by $3,000,000,
      of which our portion was $373,000.  See Note F – *Real Estate Held
      for Sale* in the notes of Part I, Item 1 - *Consolidated Financial
      Statements* to this interim report Form 10-Q.





*Dividends*:  To
      maintain our status as a REIT, we are required to make distributions, other
      than
      capital gain dividends, to our stockholders each year in an amount at least
      equal to (1) the sum of (a) 90% of our taxable income, computed without regards
      to the dividends paid deduction and our net capital gain, and (b) 90% of the
      net
      income, after tax, from foreclosure property, minus (2) the sum of certain
      specified items of non-cash income over 5% of our REIT taxable
      income.  From January 1, 2007 through June 30, 2007, we declared
      dividends to our shareholders of approximately $2.6 million.





*Distributions
      to Members:*During the four months ended April 30, 2006, we distributed
      approximately $1.7 million to Fund I’s members.





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**CAPITAL
      AND LIQUIDITY**





Liquidity
      is a measure of a company’s ability to meet potential cash requirements,
      including ongoing commitments to fund lending activities and general operating
      purposes.  Subject to a 3% reserve, we generally use all of our
      available funds to invest in real estate loans.  Distributable cash
      flow generated from such loans is paid out to our stockholders, in the form
      of a
      dividend.  We do not anticipate the need for hiring any employees,
      acquiring fixed assets such as office equipment or furniture, or incurring
      material office expenses during the next twelve months because our manager
      will
      manage our affairs.  We may pay our manager an annual management fee
      of up to 0.25% of our aggregate capital received by us and Fund II from the
      sale
      of shares or membership units.





During
      the six months ended June 30, 2007, cash flows provided by operating activities
      approximated $1.9 million.  Investing activities consisted of cash
      provided by loan payoffs of approximately $7.3 million.  Cash used for
      new investments and purchases of real estate loans totaled approximately $5.8
      million.  Financing activities mainly consisted of dividends to
      stockholders, net of reinvestment, of approximately $2.6 million.





At
      June
      30, 2007, we had approximately $1.9 million in cash, $3.1 million in marketable
      securities – related party and approximately $65.0 million in total
      assets.  We intend to meet short-term working capital needs through a
      combination of proceeds from loan payoffs, loan sales and/or
      borrowings.  We believe we have sufficient working capital to meet our
      operating needs in the near term.





Since
      we
      distribute most or all of our distributable cash generated by operations, our
      sources of liquidity include  repayments of outstanding loans,
      dividend reinvestments by our stockholders, arrangements with third parties
      to
      participate in our loans and proceeds from issuance of note payable and secured
      borrowings.





We
      have
      no current plans to sell any new shares except through our dividend reinvestment
      program.  As of July 31, 2007, approximately 3% of our shareholders
      owning less than 1% our outstanding shares have elected to reinvest their
      dividends.  The level of dividend reinvestment in the future will
      depend upon our performance, as well as the number of our stockholders who
      prefer to reinvest rather than receive current dividends.





We
      rely
      primarily upon repayment of outstanding loans to provide capital for investment
      in new loans.  Any significant level of defaults on outstanding loans
      could reduce the funds we have available for investment in new
      loans.  Resulting foreclosure proceedings may not generate full
      repayment of our loans and may result in significant delays in the return of
      invested funds.  This would diminish our capital resources and would
      impair our ability to invest in new loans.  Non-performing assets
      included loans in non-accrual status, net of allowance for loan losses, and
      real
      estate held for sale not sold through seller financing totaling approximately
      $9.8 million and $3.7 million, respectively, as of June 30, 2007, compared
      to
      approximately $8.1 million and $3.7 million, respectively, as of December 31,
      2006.  It is possible that no earnings will be recognized from these
      assets until they are disposed of, or that no earnings will be recognized at
      all, and the time it will take to dispose of these assets cannot be
      predicted.  Our manager believes that these non-performing assets are
      a result of factors unique to specific borrowers and
      properties.  Because of the estimated value of the underlying
      properties, we do not currently believe that any losses beyond those already
      recognized will be incurred from these assets upon final
      disposition.  However, it is possible that we will not be able to
      realize the full estimated carrying values upon disposition.





To
      maintain our status as a REIT, we will be required to make distributions, other
      than capital gain dividends, to our stockholders each year in an amount at
      least
      equal to (1) the sum of (a) 90% of our taxable income, computed without regards
      to the dividends paid deduction and our net capital gain, and (b) 90% of the
      net
      income, after tax, from foreclosure property, minus (2) the sum of certain
      specified items of noncash income over 5% of our REIT taxable
      income.





Loans
      in
      which unaffiliated investors have participated through inter-creditor agreements
      (“Inter-creditor Agreements”) are accounted for as secured borrowings in
      accordance with Statement of Financial Accounting Standards (“FAS”) 140 –
*Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor
      Agreements provide us additional funding sources for real estate loans whereby
      an unaffiliated investor (the “Investor”) may participate on a non-pari passu
      basis in certain real estate loans with us and/or VRM II and/or Fund III
      (collectively, the “Lead Lenders”).





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In
      the
      event of borrower non- performance, the Inter-creditor Agreements generally
      provide that the Lead Lenders must repay the Investor’s loan amount either by
      (i) continuing to remit to the Investor the interest due on the participated
      loan amount; (ii) substituting an alternative loan acceptable to the Investor;
      or (iii) repurchasing the participation from the Investor for the outstanding
      balance plus accrued interest.





During
      October 2006, we, our manager, Vestin Origination, Inc., VRM II and Fund III
      entered into an intercreditor agreement with an unrelated third party related
      to
      the funding of a construction real estate loan.  (See exhibit 10.8
      Intercreditor Agreement  under the Exhibit Index included in Part II –
Other Information, Item 6 Exhibits of this Report Form 10-Q).  The
      secured borrowing was recognized pro rata between us, VRM II and Fund III for
      the amount each entity has funded for the loan.  During May 2007, the
      secured borrowings were paid in full.  As of June 30, 2007, we did not
      have any funds used under Inter-creditor Agreements as compared to approximately
      $310,000 used under Inter-creditor Agreements as of December 31,
      2006.





We
      maintain working capital reserves of approximately 3% in cash and cash
      equivalents, certificates of deposits and short-term investments or liquid
      marketable securities.  This reserve is available to pay expenses in
      excess of revenues, satisfy obligations of underlying properties, expend money
      to satisfy our unforeseen obligations and for other permitted uses of working
      capital.





**Investments
      in Real Estate Loans Secured by Real Estate Portfolio**





We
      offer
      five real estate loan products consisting of commercial, construction,
      acquisition and development, land, and residential loans.  The
      effective interest rates on all product categories range from 5% to
      14%.  Revenue by product will fluctuate based upon relative balances
      during the period.  We had investments in 33 real estate loans,
      including loans related to seller financed real estate held for sale, as of
      June
      30, 2007, with a balance of approximately $59.1 million as compared to
      investments in 33 real estate loans, including loans related to seller financed
      real estate held for sale, as of December 31, 2006, with a balance of
      approximately $60.7 million.





At
      June
      30, 2007, the following loans were non-performing (based on current information
      and events, it is probable that we will be unable to collect all amounts due
      according to the contractual terms of the loan agreement or when the payment
      of
      interest is 90 days past due); RightStar (Part I & Part II), Monterrey
      Associates LP, Forest Development LLC and Pirates Lake, LTD.  These
      loans are currently carried on our books at a value of approximately $9.8
      million, net of allowance for loan losses of approximately $4.4 million for
      the
      RightStar loans.  These loans have been placed on non-accrual of
      interest status and are the subject of pending foreclosure proceedings. 
On
      August 7, 2007, we, VRM II and Fund III entered into a settlement agreement
      with
      the borrower of Pirates Lake, LTD. whereby the foreclosure was
      postponed.  Principal, accrued interest and $75,000 for expenses
      incurred by us, VRM II and Fund III relating to the loan is now due on October
      1, 2007.





During
      March 2007, our manager extended the Mid-State Raceway loan from March 31,
      2007
      to March 31, 2008.  As part of the extension agreement, the borrower
      made a principal payment of approximately $3.0 million, of which our portion
      was
      approximately $0.4 million, and the loan interest rate increased from 9% to
      12%.





Our
      manager periodically reviews and makes a determination as to whether the
      allowance for loan losses is adequate to cover any potential
      losses.  Additions to the allowance for loan losses are made by
      charges to the provision for loan losses.  Recoveries of previously
      charged off amounts are credited to the allowance for loan losses or included
      as
      income when the asset is disposed.  As of June 30, 2007, we have
      provided a specific reserve related to the 4 cemeteries and 8 mortuaries in
      Hawaii, of which our portion of the specific reserve is approximately $4.4
      million.  Our manager evaluated the loans and concluded that the
      remaining underlying collateral was sufficient to protect us against further
      losses of principal or interest.  Our manager will continue to
      evaluate these loans in order to determine if any other allowance for loan
      losses should be recorded.  For additional information on our
      investments in real estate loans, refer to Note D – *Investments In Real
      Estate Loans* of the Notes to the Consolidated Financial Statements included
      in Part I, Item 1*Consolidated Financial Statements*of this Interim
      Report Form 10-Q.





**Asset
      Quality and Loan Reserves**





Losses
      may occur from investing in real estate loans.  The amounts of losses
      will vary as the loan portfolio is affected by changing economic conditions
      and
      the financial condition of borrowers.





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The
      conclusion that a real estate loan is uncollectible or that collectibility
      is
      doubtful is a matter of judgment.  On a periodic basis, our manager
      evaluates our real estate loan portfolio for impairment.  The fact
      that a loan is temporarily past due does not necessarily mean that the loan
      is
      impaired.  Rather, all relevant circumstances are considered by our
      manager to determine impairment and the need for specific
      reserves.  Such evaluation, which includes a review of all loans on
      which full collectibility may not be reasonably assured, considers among other
      matters:





·
            Prevailing
                economic conditions;





·
            Historical
                experience;





·
            The
                nature and volume of the loan
                portfolio;





·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay;





·
            Evaluation
                of industry trends; and





·
            Estimated
                net realizable value of any underlying collateral in relation to
                the real
                estate loan amount.





Based
      upon this evaluation, a determination is made as to whether the allowance for
      loan losses is adequate to cover any potential losses.  Additions to
      the allowance for loan losses are made by charges to the provision for loan
      losses.  Recoveries of previously charged off amounts are credited to
      the allowance for loan losses.  For additional information regarding
      the roll-forward of the allowance for loan losses for the six months ended
      June
      30, 2007, refer to Note D – Investments In Real Estate Loans of the Notes to the
      Consolidated Financial Statements included in Part I, Item 1*Consolidated
      Financial Statements*of this Interim Report Form 10-Q.





**Investments
      in Real Estate Held for Sale**





At
      June
      30, 2007, we held
      one
      property with a total carrying value of approximately $3.3 million, which was
      acquired through foreclosure and recorded as investments in real estate held
      for
      sale.  Our investments in real estate held for sale are
      accounted for at the lower of cost or fair value less costs to sell with fair
      value based on appraisals and knowledge of local market
      conditions.  It is not our intent to invest in or own real estate as a
      long-term investment.  We seek to sell properties acquired through
      foreclosure as quickly as circumstances permit.  During the six months
      ended June 30, 2007, our manager evaluated the carrying value of the acquired
      properties located in Cathedral City, CA and based on its estimate, our manager
      has written down the value of the property by $3,000,000 of which our portion
      was $373,000.





For
      additional information on our investments in real estate held for sale, refer
      to
      Note F –*Real Estate Held for Sale*of the Notes to the Consolidated
      Financial Statements included in Part I, Item 1*Consolidated Financial
      Statements*of this Interim Report Form 10-Q.





**Investments
      in Real Estate Held for Sale — Seller Financed**





At
      June
      30, 2007, we held an interest in one****property with a total
      carrying value of approximately $7.9 million, which was sold in a transaction
      where we provided the financing to the purchaser.  GAAP requires us to
      include these properties in real estate held for sale until the borrower has
      met
      and maintained certain requirements.  We may share ownership of such
      properties with VRM II, Fund III, our manager, or other related and/or unrelated
      parties.  These investments in real estate held for sale are accounted
      for at the lower of cost or fair value less costs to sell with fair value based
      on appraisals and knowledge of local market conditions.  For
      additional information on our investments in real estate loans, refer to Note
      G
–*Real Estate Held for Sale-Seller Financed* of the Notes to the
      Consolidated Financial Statements included in Part I, Item 1*Consolidated
      Financial Statements*of this Interim Report Form 10-Q.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any interests in off-balance sheet special purpose entities nor do we
      have
      any interests in non-exchange traded commodity contracts.





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          33
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**CONTRACTUAL
      OBLIGATIONS**





The
      following summarizes our contractual obligations at June 30, 2007:





**Contractual
                Obligation**
            
            **Total**
            
            
            **Less
                Than 1 Year**
            
            
            **1-3
                Years**
            
            
            **3-5
                Years**
            
            
            **More
                Than**
              **5
                Years**Notes
                payable **(1)**
            
            $
            148,000
            
            
            $
            148,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Total
            
            $
            148,000
            
            
            $
            148,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --





**(1)**
            See
                Note K – Notes Payable of the Notes to the Consolidated Financial
                Statements included in Part I, Item 1*Consolidated Financial
                Statements*of this Interim Report Form
                10-Q.





**CRITICAL
      ACCOUNTING ESTIMATES**





**Revenue
      Recognition**





Interest
      income on loans is accrued by the effective interest method.  We do
      not accrue interest income from loans once they are determined to be
      impaired.  A loan is impaired when, based on current information and
      events, it is probable that we will be unable to collect all amounts due
      according to the contractual terms of the loan agreement or when the payment
      of
      interest is 90 days past due.





The
      following table presents a sensitivity analysis to show the impact on our
      financial condition at June 30, 2007, from fluctuations in weighted average
      interest rate charged on loans as a percentage of the loan
      portfolio:





**Changed
                Assumption**
            
            **Increase
                (Decrease) in Interest Income**Weighted
                average interest rate assumption increased by 1.0% or 100 basis
                points
            
            $
            606,000Weighted
                average interest rate assumption increased by 5.0% or 500 basis
                points
            
            $
            3,028,000Weighted
                average interest rate assumption decreased by 1.0% or 100 basis
                points
            
            $
            (606,000
            )Weighted
                average interest rate assumption decreased by 5.0% or 500 basis
                points
            
            $
            (3,028,000
            )





The
      purpose of this analysis is to provide an indication of the impact that the
      weighted average interest rate fluctuations would have on our financial
      results.  It is not intended to imply our expectation of future
      revenues or to estimate earnings.  We believe that the assumptions
      used above are appropriate to illustrate the possible material impact on the
      consolidated financial statements.





**Allowance
      for Loan Losses**





We
      maintain an allowance for loan losses on our investments in real estate loans
      for estimated credit impairment in our investment in real estate loans
      portfolio.  Our manager’s estimate of losses is based on a number of
      factors including the types and dollar amounts of loans in the portfolio,
      adverse situations that may affect the borrower’s ability to repay, prevailing
      economic conditions and the underlying collateral securing the
      loan.  Additions to the allowance are provided through a charge to
      earnings and are based on an assessment of certain factors, which may indicate
      estimated losses on the loans.  Actual losses on loans are recorded as
      a charge-off or a reduction to the allowance for loan
      losses.  Subsequent recoveries of amounts previously charged off are
      added back to the allowance or included as income.





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          34
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          of Contents*


The
      following table presents a sensitivity analysis to show the impact on our
      financial condition at June 30, 2007, from increases and decreases to our
      allowance for loan losses as a percentage of the loan portfolio:





**Changed
                Assumption**
            
            **Increase
                (Decrease) in Allowance for Loan Losses**Allowance
                for loan losses assumption increased by 1.0% of loan
                portfolio
            
            $
            591,000Allowance
                for loan losses assumption increased by 5.0% of loan
                portfolio
            
            $
            2,954,000Allowance
                for loan losses assumption decreased by 1.0% of loan
                portfolio
            
            $
            (591,000
            )Allowance
                for loan losses assumption decreased by 5.0% of loan
                portfolio
            
            $
            (2,954,000
            )





Estimating
      allowances for loan losses requires significant judgment about the underlying
      collateral, including liquidation value, condition of the collateral, competency
      and cooperation of the related borrower and specific legal issues that affect
      loan collections or taking possession of the property.  As a
      commercial real estate lender willing to invest in loans to borrowers who may
      not meet the credit standards of other financial institutional lenders, the
      default rate on our loans could be higher than those generally experienced
      in
      the mortgage lending industry.  We, our manager and Vestin
      Originations generally approves loans more quickly than other real estate
      lenders and, due to our expedited underwriting process, there is a risk that
      the
      credit inquiry we perform will not reveal all material facts pertaining to
      a
      borrower and the security.





We
      may
      discover additional facts and circumstances as we continue our efforts in the
      collection and foreclosure processes.  This additional information
      often causes management to reassess its estimates.  In recent years,
      we have revised estimates of our allowance for loan
      losses.  Circumstances that may cause significant changes in our
      estimated allowance include, but not limited to:





·
            Declines
                in real estate market conditions that can cause a decrease in expected
                market value;





·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes;





·
            Lack
                of progress on real estate developments after we advance
                funds.  We customarily utilize disbursement agents to monitor
                the progress of real estate developments and approve loan
                advances.  After further inspection of the related property,
                progress on construction occasionally does not substantiate an increase
                in
                value to support the related loan
                advances;





·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon property;
                and





·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.





**Real
      Estate Held For Sale**





Real
      estate held for sale includes real estate acquired through foreclosure and
      will
      be carried at the lower of the recorded amount, inclusive of any senior
      indebtedness, or the property's estimated fair value, less estimated costs
      to
      sell, with fair value based on appraisals and knowledge of local market
      conditions.  While pursuing foreclosure actions, we seek to identify
      potential purchasers of such property.  It is not our intent to invest
      in or own real estate as a long-term investment.  In accordance with
      FAS 144 - *Accounting for the Impairment or Disposal of Long Lived Assets,*we seek to sell properties acquired through foreclosure as quickly
      as
      circumstances permit.  The carrying values of real estate held for
      sale are assessed on a regular basis from updated appraisals, comparable sales
      values or purchase offers.





Management
      classifies real estate held for sale when the following criteria are
      met:





·
            Management
                commits to a plan to sell the
                properties;





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          35
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          of Contents*





·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary;





·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated;





·
            The
                sale of the property is probable;





·
            The
                property is being actively marketed for sale at a reasonable price;
                and





·
            Withdrawal
                or significant modification of the sale is not
                likely.





**Real
      Estate Held For Sale – Seller Financed**





We
      occasionally finance sales of foreclosed properties to independent third
      parties.  In order to record a sale of real estate when the seller is
      providing continued financing, FAS 66 – *Accounting for Sales of Real
      Estate* ("FAS 66'') requires the buyer of the real estate to make minimum
      and initial continuing investments.  Minimum initial investments as
      defined by FAS 66 range from 10% to 25% based on the type of real estate
      sold.  In addition, FAS 66 limits commitments and contingent
      obligations incurred by a seller in order to record a sale.





Because
      we occasionally foreclose on loans with raw land or developments in progress,
      available financing for such properties is often limited and we frequently
      provide financing up to 100% of the selling price on these
      properties.  In addition, we may make additional loans to the buyer to
      continue development of a property.  Although sale agreements are
      consummated at closing, they lack adequate initial investment by the buyer
      to
      qualify as a sales transaction as defined in FAS 66.  These sale
      agreements are not recorded as a sale until the requirements of FAS 66 are
      met.





These
      sales agreements are recorded under the deposit method or cost recovery method
      as defined in FAS 66.  Under the deposit method, no profit is
      recognized and any cash received from the buyer is reported as a deposit
      liability on the balance sheet.  Under the cost recovery method, no
      profit is recognized until payments by the buyer exceed the carrying basis
      of
      the property sold.  Principal payments received will reduce the
      related receivable, and interest collections will be recorded as unrecognized
      gross profit on the balance sheet.  The carrying values of these
      properties are included in real estate held for sale on the accompanying
      consolidated balance sheets.





**ITEM
                3.**
            **QUANTITATIVEAND
                QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





We
      are
      exposed to market risk, primarily from changes in interest rates.  We
      do not deal in any foreign currencies and do not own any options, futures or
      other derivative instruments.  We do not have a significant amount of
      debt.





Most
      of
      our assets consisted of investments in real estate loans, which from time to
      time include those that are financed under Inter-creditor
      Agreements.  At June 30, 2007, our aggregate investment in real estate
      loans was approximately $47.2 million, net of allowance, with a weighted average
      effective interest rate of 11.10%.  Most of the real estate loans had
      an initial term of 12 months.  The weighted average term of
      outstanding loans, including extensions and loans related to seller financed
      real estate held for sale, at June 30, 2007, was 20 months.  All but
      two of the outstanding real estate loans at June 30, 2007, were fixed rate
      loans.  All of the real estate loans are held for investment purposes;
      none are held for sale.  We intend to hold such real estate loans to
      maturity.  None of the real estate loans had prepayment penalties and
      14 had an exit fee.





Market
      fluctuations in interest rates generally do not affect the carrying value of
      our
      investment in real estate loans.  However, significant and sustained
      changes in interest rates could affect our operating results.  If
      interest rates decline significantly, some of the borrowers could prepay their
      loans with the proceeds of a refinancing at lower interest
      rates.  This would reduce our earnings and funds available for
      dividend distribution to stockholders.  On the other hand, a
      significant increase in interest rates could result in a slowdown in real estate
      development activity that would reduce the demand for commercial real estate
      loans.  As a result, we might encounter greater difficulty in
      identifying appropriate borrowers.  We are not in a position to
      quantify the potential impact on our operating results from a material change
      in
      interest rates.





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          36
          -
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          of Contents*


The
      following table contains information about the investment in real estate loans,
      including loans related to seller financed real estate held for sale, in our
      portfolio as of June 30, 2007.  The presentation aggregates the
      investment in real estate loans by their maturity dates for maturities occurring
      in each of the years 2007 through 2010 and thereafter and separately aggregates
      the information for all maturities arising after 2010.  The carrying
      values of these assets approximate their fair value as of June 30,
      2007.





**Interest
                Earning Assets**
              **Aggregated
                by Maturity at June 30, 2007****Interest
                Earning Assets**
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010**
            
            
            **Thereafter**
            
            
            **Total**Investments
                in real estate loans
            
            $
            49,150,000
            
            
            $
            9,935,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            59,085,000Weighted
                average interest rates
            
            
            11.11%
            
            
            
            11.03%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            11.10%





At
      June
      30, 2007, we also had approximately $5.0 million invested in cash and marketable
      securities – related party (VRM II).  Approximately 3% of our assets
      will be held in such accounts as a cash reserve; additional deposits in such
      accounts will be made as funds are received from investors and repayment of
      loans pending the deployment of such funds in new real estate
      loans.  We believe that these financial assets do not give rise to
      significant interest rate risk due to their short-term nature.





**ITEM
                4.**
            **CONTROLSAND
                PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports under the Exchange Act
      is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC's rules and forms, and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer (“CEO”)
      and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions
      regarding required financial disclosure. In connection with the preparation
      of
      this Report on Form 10-Q, our management carried out an evaluation, under the
      supervision and with the participation of the our management, including the
      CEO
      and CFO, as of June 30, 2007, of the effectiveness of the design and operation
      of our disclosure controls and procedures, as such term is defined under Rule
      13a-15(e) under the Exchange Act.  Based upon this evaluation, our CEO
      and CFO believe that these controls and procedures are adequate to ensure we
      are
      able to collect, process and disclose within the required time periods the
      information we are required to disclose in the reports we file with the
      SEC.





The
      certifications of the our Chief Executive Officer and Chief Financial Officer
      required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits
      31.1 and 31.2 to this report.





**Changes
      in Internal Control Over Financial Reporting**





Our
      management has identified the following change in our internal controls over
      financial reporting during the Quarter ended June 30, 2007.  During
      April 2007, our manager appointed a Corporate Controller with the requisite
      experience to assist and work directly with our Chief Financial
      Officer.





Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues within our company have
      been or will be detected.  Even effective internal control over
      financial reporting can only provide reasonable assurance with respect to
      financial statement preparation.  Furthermore, because of changes in
      conditions, the effectiveness of internal control over financial reporting
      may
      vary over time.  Our management, including our Chief Executive Officer
      and Chief Financial Officer, does not expect that our controls and procedures
      will prevent all errors.




**ITEM
                  4T.**
              **CONTROLSAND
                    PROCEDURES**


Not
      applicable




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          of Contents*


**PART
      II – OTHERINFORMATION**





**ITEM
                1.**
            **LEGALPROCEEDINGS**





Please
      refer to Note M *Legal Matters Involving the Manager* and Note N
*Legal Matters Involving the Company* in Part I Item 1 *Financial
      Statements* of this Form 10-Q for information regarding our legal
      proceedings, which are incorporated herein by reference.




**ITEM
                  1A.**
              **RISKFACTORS**
 In
        considering our future performance and any forward-looking statements made
        in
        this report, the material risks described below should be considered
        carefully.  These factors should be considered in conjunction with the
        other information included elsewhere in this report.





**RISKS
      RELATED TO OUR BUSINESS**





**Defaults
      on our real estate loans will decrease our revenues and
      distributions.**





We
      are in
      the business of investing in real estate loans and, as such, we are subject
      to
      risk of defaults by borrowers.  Our performance will be directly
      impacted by any defaults on the loans in our portfolio.  As a
      commercial real estate lender willing to invest in loans to borrowers who may
      not meet the credit standards of other financial institutional lenders, the
      rate
      of default on our loans could be higher than those generally experienced in
      the
      real estate lending industry.  Any sustained period of increased
      defaults could adversely affect our business, financial condition, liquidity
      and
      the results of our operations.  We seek to mitigate the risk by
      estimating the value of the underlying collateral and insisting on adequate
      loan-to-value ratios.  However, we cannot be assured that these
      efforts will fully protect us against losses on defaulted loans.  Any
      subsequent decline in real estate values on defaulted loans could result in
      less
      security than anticipated at the time the loan was originally made, which may
      result in our not recovering the full amount of the loan.  Any failure
      of a borrower to repay loans or interest on loans will reduce our revenues
      and
      distributions and the value of common stock.  Our weighted average
      loan-to-value ratio, including loans related to seller financed real estate
      held
      for sale, as of June 30, 2007 was 74.55% as compared to 71.35% as of December
      31, 2006.  Our appraisals are generally dated within 12 months of the
      date of loan origination and may not reflect a decrease in the value of the
      real
      estate due to events subsequent to the date of the appraisals.





As
      of
      June 30, 2007, we had in our portfolio approximately $9.8 million in delinquent
      loans, net of allowance for loan losses, and approximately $3.3 million of
      real
      estate held for sale not sold through seller financing for a total of
      approximately $13.1 million in non-performing assets, which represented
      approximately 21% of our stockholders’ equity.  As of June 30, 2007,
      we also had approximately $7.9 million of seller financed real estate held
      for
      sale and had received approximately $1.5 million in payments from borrowers
      on
      the loans associated with these properties.  We do not believe that a
      rising interest rate environment will increase or accelerate our delinquency
      rate because all of our loans are short term.





**Our
      underwriting standards and procedures are more lenient than other financial
      institutional lenders, which may result in a higher level of non-performing
      assets and less amounts available for distribution.**





Our
      underwriting standards and procedures are more lenient than other financial
      institutional lenders in that we will invest in loans to borrowers who may
      not
      be required to meet the credit standards of other financial institutional real
      estate lenders, which may lead to an increase in non-performing assets in our
      loan portfolio and create additional risks of return.  We approve real
      estate loans more quickly than other lenders.  We rely heavily on
      third-party reports and information such as appraisals and environmental
      reports.  Because of our accelerated due diligence process, we may
      accept documentation that was not specifically prepared for us or commissioned
      by us.  This creates a greater risk of the information contained
      therein being out of date or incorrect.  Generally, we will not spend
      more than 20 days assessing the character and credit history of our
      borrowers.  Due to the nature of loan approvals, there is a risk that
      the credit inquiry we perform will not reveal all material facts pertaining
      to
      the borrower and the security.  There may be a greater risk of default
      by our borrowers, which may impair our ability to make timely distributions
      and
      which may reduce the amount we have available to distribute.





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**We
      depend upon our real estate security to secure our real estate loans, and we
      may
      suffer a loss if the value of the underlying property
      declines.**





We
      depend
      upon our real estate security to protect us on the loans that we
      make.  We depend upon the skill of independent appraisers to value the
      security underlying our loans.  However, notwithstanding the
      experience of the appraisers, they may make mistakes, or the value of the real
      estate may decrease due to subsequent events.  Our appraisals are
      generally dated within 12 months of the date of loan origination and may have
      been commissioned by the borrower.  Therefore, the appraisals may not
      reflect a decrease in the value of the real estate due to events subsequent
      to
      the date of the appraisals.  In addition, most of the appraisals are
      prepared on an as-if developed basis, which approximates the post-construction
      value of the collateralized property assuming such property is
      developed.  As-if developed values on raw land loans or acquisition
      and development loans often dramatically exceed the immediate sales value and
      may include anticipated zoning changes and successful development by the
      purchaser upon which development is dependent on availability of
      financing.  As most of the appraisals will be prepared on an as-if
      developed basis, if the loan goes into default prior to completion of the
      project, the market value of the property may be substantially less than the
      appraised value.  As a result, there may be less security than
      anticipated at the time the loan was originally made.  If there is
      less security and a default occurs, we may not recover the full amount of our
      loan, thus reducing the amount of funds available to distribute.





**We
      typically make “balloon payment” loans, which are riskier than loans with
      payments of principal over an extended period of time.**





The
      loans
      we invest in or purchase generally require the borrower to make a “balloon
      payment” on the principal amount upon maturity of the loan.  A balloon
      payment is a large principal balance that is payable after a period of time
      during which the borrower has repaid none or only a small portion of the
      principal balance.  As of June 30, 2007, all of our loans provided for
      payments of interest only with a “balloon” payment of principal payable in full
      at the end of the term, with the exception of one of our loans that has both
      principal and interest payments along with a “balloon” payment at the end of the
      term.  Loans with balloon payments are riskier than loans with even
      payments of principal over an extended time period such as 15 or 30 years
      because the borrower’s repayment depends on its ability to sell the property
      profitably, obtain suitable refinancing or otherwise raise a substantial amount
      of cash when the loan comes due.  There are no specific criteria used
      in evaluating the credit quality of borrowers for loans requiring balloon
      payments.  Furthermore, a substantial period of time may elapse
      between the review of the financial statements of the borrower and the date
      when
      the balloon payment is due.  As a result, there is no assurance that a
      borrower will have sufficient resources to make a balloon payment when
      due.





**Our
      loans are not guaranteed by any governmental agency.**





Our
      loans
      are not insured or guaranteed by a federally owned or guaranteed mortgage
      agency.  Consequently, our recourse, if there is a default, may be to
      foreclose upon the real property securing a loan and/or pursuing the borrower’s
      guarantee of the principal.  The value of the foreclosed property may
      have decreased and may not be equal to the amount outstanding under the
      corresponding loan, resulting in a decrease of the amount available to
      distribute.





**Our
      real estate loans may not be marketable, and we expect no secondary market
      to
      develop.**





We
      do not
      expect our real estate loans to be marketable, and we do not expect a secondary
      market to develop for them.  As a result, we will generally bear all
      the risk of our investment until the loans mature.  This will limit
      our ability to hedge our risk in changing real estate markets and may result
      in
      reduced returns to our investors.





**Any
      borrowing by us will increase risk and may reduce the amount we have available
      to distribute to stockholders.**





We
      may
      borrow funds to expand our capacity to invest in real estate
      loans.  We may borrow up to 70% of the fair market value of our
      outstanding real estate loans at any time.  Any such borrowings will
      require us to carefully manage our cost of funds.  No assurance can be
      given that we will be successful in this effort.  Should we be unable
      to repay the indebtedness and make the interest payments on the loans, the
      lender will likely declare us in default and require that we repay all amounts
      owing under the loan facility.  Even if we are repaying the
      indebtedness in a timely manner, interest payments owing on the borrowed funds
      may reduce our income and the distributions.  As of June 30, 2007 and
      December 31, 2006, we had total indebtedness of $0 and $310,000,
      respectively.


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          39
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          of Contents*





We
      may
      borrow funds from several sources, and the terms of any indebtedness we incur
      may vary.  However, some lenders may require as a condition of making
      a loan to us that the lender will receive a priority on loan repayments received
      by us.  As a result, if we do not collect 100% on our investments, the
      first dollars may go to our lenders and we may incur a loss that will result
      in
      a decrease of the amount available for distribution.  In addition, we
      may enter into securitization arrangements in order to raise additional
      funds.  Such arrangements could increase our leverage and adversely
      affect our cash flow and our ability to make distributions.  During
      October 2006, we, our manager, Vestin Origination, Inc., VRM II and Fund III
      entered into an intercreditor agreement with an unrelated third party related
      to
      the funding of a construction real estate loan.  he secured borrowing
      was recognized pro rata between us, VRM II and Fund III for the amount each
      entity has funded for the loan.  During May 2007, the secured
      borrowings were paid in full.





We
      may
      need cash to meet our minimum REIT distribution requirements and limit U.S.
      federal income taxation.  Because we are required to distribute
      annually to our stockholders at least 90% of our REIT taxable income (determined
      without regard to the dividends paid deduction and by excluding net capital
      gains) to qualify as a REIT and because we intend to distribute substantially
      all of our REIT taxable income and net capital gain, our ability to expand
      our
      loan portfolio will depend in large part on external sources of
      capital.  In addition, if our minimum distribution requirements to
      maintain our REIT status and minimize U.S. federal income taxation become large
      relative to our cash flow as a result of our taxable income exceeding our cash
      flow from operations, then we may be required to borrow funds or raise capital
      by selling assets to meet those distribution requirements.  Any equity
      financing may result in substantial dilution to our stockholders, and any debt
      financing may include restrictive covenants.  We may not be able to
      raise capital on reasonable terms, if at all.





**We
      may have difficulty protecting our rights as a secured
      lender.**





We
      believe that our loan documents will enable us to enforce our commercial
      arrangements with borrowers.  However, the rights of borrowers and
      other secured lenders may limit our practical realization of those
      benefits.  For example:





·
            Judicial
                foreclosure is subject to the delays of protracted
                litigation.  Although we expect non-judicial foreclosure to be
                quicker, our collateral may deteriorate and decrease in value during
                any
                delay in foreclosing on it;





·
            The
                borrower’s right of redemption during foreclosure proceedings can deter
                the sale of our collateral and can for practical purposes require
                us to
                manage the property;





·
            Unforeseen
                environmental hazards may subject us to unexpected liability and
                procedural delays in exercising our
                rights;





·
            The
                rights of senior or junior secured parties in the same property can
                create
                procedural hurdles for us when we foreclose on
                collateral;





·
            Required
                licensing and regulatory approvals may complicate our ability to
                foreclose
                or to sell a foreclosed property where our collateral includes an
                operating business.  We have recently experienced difficulties
                in foreclosing on the RightStar loans discussed in Note N – *Legal
                Matters Involving The Company* in the notes to the consolidated
                financial statement under Part I, Item I. *Consolidated Financial
                Statements* to this Interim Report Form 10-Q, because of the need to
                obtain a license from the State of Hawaii to operate funeral homes
                and
                cemeteries;





·
            We
                may not be able to pursue deficiency judgments after we foreclose
                on
                collateral; and





·
            State
                and federal bankruptcy laws can prevent us from pursuing any actions,
                regardless of the progress in any of these suits or
                proceedings.





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**By
      becoming the owner of property, we may incur additional obligations, which
      may
      reduce the amount of funds available for distribution.**





We
      intend
      to own real property only if we foreclose on a defaulted loan and purchase
      the
      property at the foreclosure sale.  Acquiring a property at a
      foreclosure sale may involve significant costs.  If we foreclose on
      the security property, we expect to obtain the services of a real estate broker
      and pay the broker’s commission in connection with the sale of the
      property.  We may incur substantial legal fees and court costs in
      acquiring a property through contested foreclosure and/or bankruptcy
      proceedings.  In addition, significant expenditures, including
      property taxes, maintenance costs, mortgage payments, insurance costs and
      related charges, must be made on any property we own regardless of whether
      the
      property is producing any income.





Under
      applicable environmental laws, any owner of real property may be fully liable
      for the costs involved in cleaning up any contamination by materials hazardous
      to the environment.  Even though we might be entitled to
      indemnification from the person that caused the contamination, there is no
      assurance that the responsible person would be able to indemnify us to the
      full
      extent of our liability.  Furthermore, we would still have court and
      administrative expenses for which we may not be entitled to
      indemnification.





**A
      prolonged economic slowdown, lengthy or severe recession or significant increase
      in interest rates could harm our business.**





The
      risks
      associated with our business are more acute during periods of economic slowdown
      or recession because these periods can be accompanied by decreased demand for
      consumer credit and declining real estate values.  As a commercial
      real estate lender willing to invest in riskier loans, rates of delinquencies,
      foreclosures and losses on our loans could be higher than those generally
      experienced in the commercial mortgage lending industry during periods of
      economic slowdown or recession.  Problems in the sub-prime residential
      mortgage market could adversely affect the general economy or the availability
      of funds for commercial real estate developers.  This in turn could
      lead to an increase in defaults on our loans.  Furthermore, if
      interest rates were to increase significantly, the costs of borrowing may become
      too expensive, which may negatively impact the refinance market by reducing
      demand for real estate lending.  For the six months ended June 30,
      2007, loan originations accounted for all but one loan funded during that period
      as there was one loan refinanced during the period.  Any sustained
      period of increased delinquencies, foreclosures or losses or a significant
      increase in interest rates could adversely affect our ability to originate,
      purchase and securitize loans, which could significantly harm our business,
      financial condition, liquidity and results of operations.





As
      of
      June 30, 2007, none of our loans had a prepayment penalty and 14 loans had
      an
      exit fee.  Based on our manager’s historical experience, we expect
      that our loans will include exit fees.  Should interest rates
      decrease, our borrowers may prepay their outstanding loans with us in order
      to
      receive a more favorable rate.  This may reduce the amount of funds we
      have available to distribute.





**Our
      results are subject to fluctuations in interest rates and other economic
      conditions.**





Our
      results of operations will vary with changes in interest rates and with the
      performance of the relevant real estate markets.  If the economy is
      healthy, we expect that more people will be borrowing money to acquire, develop
      or renovate real property.  However, if the economy grows too fast,
      interest rates may increase too much and the cost of borrowing may become too
      expensive.  Alternatively, if the economy enters a recession, real
      estate development may slow.  A slowdown in real estate lending may
      mean we will have fewer loans to acquire, thus reducing our revenues and the
      distributions.





One
      of
      the results of interest rate fluctuations is that borrowers may seek to extend
      their low-interest-rate loans after market interest rates have
      increased.  This creates two risks for us:





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·
            If
                interest rates rise, borrowers under loans with monthly or quarterly
                principal payments may be compelled to extend their loans to decrease
                the
                principal paid with each payment because the interest component has
                increased.  If this happens, we are likely to be at a greater
                risk of the borrower defaulting on the extended loan, and the increase
                in
                the interest rate on our loan may not be adequate compensation for
                the
                increased risk.  Additionally, any fees paid to extend the loan
                are paid to Vestin Originations, not to us.  Our revenues and
                distributions will decline if we are unable to reinvest at higher
                rates or
                if an increasing number of borrowers default on their loans;
                and





·
            If,
                at a time of relatively low interest rates, a borrower should prepay
                obligations that have a higher interest rate from an earlier period,
                we
                will likely not be able to reinvest the funds in real estate loans
                earning
                that higher rate of interest.  In the absence of a prepayment
                fee, we will receive neither the anticipated revenue stream at the
                higher
                rate nor any compensation for its loss.  This is a risk if the
                loans we invest in do not have prepayment penalties or exit
                fees.





Our
      results will also reflect other economic conditions, such as a particular
      industry migrating to or from one of the states into which we make
      loans.





**Legal
      actions seeking damages and appraisal rights could harm our operating results
      and financial condition.**





We
      have
      recently been named in several legal actions seeking damages and appraisal
      rights in connection with the REIT conversion.  See Note M – *Legal
      Matters Involving The Manager* and Note N – *Legal Matters Involving The
      Company* in the notes to the consolidated financial statement under Part I,
      Item I. *Consolidated Financial Statements* to this Interim Report Form
      10-Q.  While we believe these actions are without merit, the defense
      of such actions could materially increase our legal costs and may require the
      substantial attention of our management.  This in turn might adversely
      impact our operating results.  Moreover, any adverse outcome in such
      actions could result in our having to pay substantial damages that would reduce
      our cash resources and harm our financial condition.





**We
      face competition for real estate loans that may reduce available yields and
      fees
      available.**





We
      consider our direct competitors to be the providers of real estate loans who
      offer short-term, equity-based loans on an expedited basis for higher fees
      and
      rates than those charged by other financial institutional lenders such as
      commercial banks, insurance companies, mortgage brokers and pension
      funds.  Many of the companies against which we compete have
      substantially greater financial, technical and other resources than either
      our
      company or our manager.  Competition in our market niche depends upon
      a number of factors, including price and interest rates of the loan, speed
      of
      loan processing, cost of capital, reliability, quality of service and support
      services.  If our competition decreases interest rates on their loans
      or makes funds more easily accessible, yields on our loans could decrease and
      the costs associated with making loans could increase, both of which would
      reduce our revenues and the distributions.





**MANAGEMENT
      AND CONFLICTS OF INTEREST RISKS**





**We
      rely on our manager to manage our day-to-day operations and select our loans
      for
      investment.**





Our
      ability to achieve our investment objectives and to make distributions depends
      upon our manager’s and its affiliate’s performance in obtaining, processing,
      making and brokering loans for us to invest in and determining the financing
      arrangements for borrowers.  Stockholders have no opportunity to
      evaluate the financial information or creditworthiness of borrowers, the terms
      of mortgages, the real property that is our collateral or other economic or
      financial data concerning our loans.  We pay our manager an annual
      management fee of up to 0.25% of our aggregate capital received by us and Fund
      I
      from the sale of shares or membership units.  This fee is payable
      regardless of the performance of our loan portfolio.  Our manager has
      no fiduciary obligations to our stockholders, is not required to devote its
      employees’ full time to our business and may devote time to business interests
      competitive to our business.





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**Our
      manager’s lack of experience with certain real estate markets could impact its
      ability to make prudent investments on our behalf.**





As
      of
      June 30, 2007, our loans were in the following states: Arizona, California,
      Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and
      Washington.  Depending on the market and on our company’s performance,
      we plan to expand our investments throughout the United
      States.  However, our manager has limited experience outside of the
      Western and Southern United States.  Real estate markets vary greatly
      from location to location and the rights of secured real estate lenders vary
      considerably from state to state.  Our manager’s limited experience in
      most U.S. real estate markets may impact its ability to make prudent investment
      decisions on our behalf.  Accordingly, where our manager deems it
      necessary, it plans to utilize independent real estate advisors and local legal
      counsel located in markets where it lacks experience for consultation prior
      to
      making investment decisions.  Stockholders will not have an
      opportunity to evaluate the qualifications of such advisors and no assurance
      can
      be given that they will render prudent advice to our manager.





**Our
      success depends on key personnel of our manager, the loss of whom could
      adversely affect our operating results, and on our manager’s ability to attract
      and retain qualified personnel.**





Our
      success depends in part upon the continued contributions of certain key
      personnel of our manager, including; Michael V. Shustek (Chief Executive Officer
      and President), Rocio Revollo (Chief Financial Officer), James M. Townsend
      (Chief Operating Officer) and Daniel B. Stubbs (Senior Vice President,
      Underwriting) some of whom would be difficult to replace because of their
      extensive experience in the field, extensive market contacts and familiarity
      with our company.  If any of these key employees were to cease
      employment, our operating results could suffer.  None of the key
      personnel of our manager are subject to an employment, non-competition or
      confidentiality agreement with our manager, or us and we do not maintain “key
      man” life insurance policies on any of them.  Our future success also
      depends in large part upon our manager’s ability to hire and retain additional
      highly skilled managerial, operational and marketing personnel.  Our
      manager may require additional operations and marketing people who are
      experienced in obtaining, processing, making and brokering loans and who also
      have contacts in the relevant markets.  Competition for personnel is
      intense, and we cannot be assured that we will be successful in attracting
      and
      retaining skilled personnel.  If our manager were unable to attract
      and retain key personnel, the ability of our manager to make prudent investment
      decisions on our behalf may be impaired.





**Vestin
      Mortgage serves as our manager pursuant to a long-term management agreement
      that
      may be difficult to terminate and does not reflect arm’s length
      negotiations.**





We
      have
      entered into a long-term management agreement with Vestin Mortgage to act as
      our
      manager.  The term of the management agreement is for the duration of
      our existence.  The management agreement may only be terminated upon
      the affirmative vote of a majority in interest of stockholders entitled to
      vote
      on the matter or by our board of directors for cause upon 90 days’ written
      notice of termination.  Consequently, it may be difficult to terminate
      our management agreement and replace our manager in the event that our
      performance does not meet expectations or for other reasons unless the
      conditions for termination of the management agreement are
      satisfied.  The management agreement was negotiated by related parties
      and may not reflect terms as favorable as those subject to arm’s length
      bargaining.





**Our
      manager will face conflicts of interest concerning the allocation of its
      personnel’s time.**





Our
      manager is also the manager of VRM II, Fund III and inVestin Nevada, companies
      with investment objectives similar to ours.  Our manager and Mr.
      Shustek, who indirectly owns 100% of our manager, anticipate that they may
      also
      sponsor other real estate programs having investment objectives similar to
      ours.  As a result, our manager and Mr. Shustek may have conflicts of
      interest in allocating their time and resources between our business and other
      activities.  During times of intense activity in other programs and
      ventures, our manager and its key people will likely devote less time and
      resources to our business than they ordinarily would.  Our management
      agreement with our manager does not specify a minimum amount of time and
      attention that our manager and its key people are required to devote to our
      company.  Thus, our manager may not spend sufficient time managing our
      operations, which could result in our not meeting our investment
      objectives.





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**Our
      manager and its affiliates will face conflicts of interest arising from our
      fee
      structure.**





Vestin
      Originations, an affiliate of our manager, will receive substantial fees from
      borrowers for transactions involving real estate loans.  Many of these
      fees are paid on an up-front basis.  In some cases, Vestin
      Originations is entitled to additional fees for loan extensions or modifications
      and loan assumptions and reconveyances.  These and other fees are
      quantified and described in greater detail under “Management Agreement —
Compensation.”  Vestin Originations’ compensation is based on the
      volume and size of the real estate loans selected for us, regardless of their
      performance, which could create an incentive to make or extend riskier
      loans.  Our interests may diverge from those of our manager, Vestin
      Originations and Mr. Shustek to the extent that Vestin Originations benefits
      from up-front fees that are not shared with us.





Vestin
      Originations will be receiving fees from borrowers that would otherwise increase
      our returns.  Because Vestin Originations receives all of these fees,
      our interests will diverge from those of our manager, Vestin Originations and
      Mr. Shustek when our manager decides whether we should charge the borrower
      higher interest rates or our manager’ affiliates should receive higher fees from
      borrowers.





We
      paid
      our manager a management fee of approximately $138,000 for the six months ended
      June 30, 2007.  In addition, Vestin Mortgage and Vestin Originations
      received a total of $72,000 and approximately $5.7 million, respectively in
      fees
      directly from borrowers for the six months ended June 30, 2007.  The
      amounts received from borrowers represent fees earned by Vestin Mortgage and
      Vestin Originations for loans originated for all funds managed by Vestin
      Mortgage, including us, VRM II, Fund III and inVestin Nevada.  Our
      assets represented approximately 14% of the assets managed by Vestin Mortgage
      as
      of June 30, 2007.





**Our
      manager will face conflicts of interest relating to other investments in real
      estate loans.**





We
      expect
      to invest in real estate loans when one or more other companies managed by
      our
      manager are also investing in real estate loans.  There is a risk that
      our manager may select for us a real estate loan investment that provides lower
      returns than a real estate loan investment purchased by another program or
      entity managed by our manager.  Our manager also serves as the manager
      for VRM II, Fund III and inVestin Nevada, which have similar investment
      objectives as our company.  There are no restrictions or guidelines on
      how our manager will determine which loans are appropriate for us and which
      are
      appropriate for VRM II, Fund III, inVestin Nevada or another company that our
      manager manages.  Moreover, our manager has no obligation to provide
      us with any particular opportunities or even a pro rata share of opportunities
      afforded to other companies it manages.





**UNITED
      STATES FEDERAL INCOME TAX RISKS RELATING TO OUR REIT
      QUALIFICATION**





**Our
      failure to qualify as a REIT would subject us to U.S. federal income tax, which
      would reduce amounts available for distribution to our
      stockholders.**





We
      have
      elected to be taxed as a REIT under the Code.  Our qualification as a
      REIT requires us to satisfy numerous requirements (some on an annual and
      quarterly basis) established under highly technical and complex Code provisions
      for which there are only limited judicial or administrative interpretations,
      and
      involves the determination of various factual matters and circumstances not
      entirely within our control.  We intend that our organization and
      method of operation will enable us to qualify as a REIT, but we may not so
      qualify or we may not be able to remain so qualified in the
      future.  Future legislation, new regulations, administrative
      interpretations or court decisions could adversely affect our ability to qualify
      as a REIT or adversely affect our stockholders.





If
      we
      fail to qualify as a REIT in any taxable year, we would be subject to U.S.
      federal income tax (including any applicable alternative minimum tax) on our
      taxable income at corporate rates, and we would not be allowed to deduct
      distributions made to our stockholders in computing our taxable
      income.  We may also be disqualified from treatment as a REIT for the
      four taxable years following the year in which we failed to
      qualify.  The additional tax liability would reduce our net earnings
      available for investment or distribution to stockholders.  In
      addition, we would no longer be required to make distributions to our
      stockholders.  Even if we continue to qualify as a REIT, we will
      continue to be subject to certain U.S. federal, state and local taxes on our
      income and property.





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**Distributions
      from a REIT are currently taxed at a higher rate than corporate
      distributions.**





Under
      the
      Tax Relief and Reconciliation Act of 2003, the maximum U.S. federal income
      tax
      rate on both distributions from certain domestic and foreign corporations and
      net long-term capital gain for individuals was reduced to 15% until
      2008.  The Tax Increase Prevention and Reconciliation Act of 2005,
      which signed into law on May 17, 2006, extended the 15% long-term net capital
      gain rate to 2010.  However, this reduced rate of tax on distributions
      generally will not apply to our distributions (except those distributions
      identified by the company as “capital gain dividends” which are taxable as
      long-term capital gain) and therefore such distributions generally will be
      taxed
      as ordinary income.  Ordinary income generally is subject to U.S.
      federal income tax rate at a rate of up to 35% for individuals.  The
      higher tax rate on our distributions may cause the market to devalue our common
      stock relative to stock of those corporations whose distributions qualify for
      the lower rate of taxation.  Please note that, as a general matter,
      distributions from a REIT will be taxed at the same rate as stockholders’ share
      of Vestin Realty Mortgage I’s taxable income attributable to its realized net
      interest income.





**A
      portion of our business is potentially subject to prohibited transactions
      tax.**





As
      a
      REIT, we are subject to a 100% tax on our net income from “prohibited
      transactions.”  In general, prohibited transactions are sales or other
      dispositions of property to customers in the ordinary course of
      business.  Sales by us of property in the course of our business will
      generally constitute prohibited transactions.





We
      intend
      to avoid the 100% prohibited transactions tax on property foreclosed upon by
      Fund I prior to the REIT conversion by holding and selling such properties
      through one or more wholly-owned taxable REIT subsidiaries.  However,
      under the Code, no more than 20% of the value of the assets of a REIT may be
      represented by securities of one or more taxable REIT subsidiaries and a taxable
      REIT subsidiary generally cannot operate a lodging or health care
      facility.





As
      of
      June 30, 2007, we held one property with a total carrying value of approximately
      $3.3 million recorded as investments in real estate held for sale.  As
      of June 30, 2007, we also held interests in one property with a total carrying
      value of approximately $7.9 million, which was sold in a transaction in which
      we
      or an affiliate provided the financing and recorded as seller financed real
      estate held for sale.  United States generally accepted accounting
      principals (“GAAP”) requires us to include this property in real estate held for
      sale until the borrower has met and maintained certain
      requirements.  The real estate held for sale and the seller financed
      real estate held for sale collectively constituted approximately 17.4% of our
      assets as of June 30, 2007.  In addition, our seller financed real
      estate held for sale property is an assisted living facility, which cannot
      be
      operated by a taxable REIT subsidiary.





**Taxable
      REIT subsidiaries are subject to corporate-level tax, which may devalue our
      common stock relative to other companies.**





Taxable
      REIT subsidiaries are corporations subject to corporate-level
      tax.  Our use of taxable REIT subsidiaries may cause the market to
      value its common stock lower than the stock of other publicly traded REITs
      which
      may not use taxable REIT subsidiaries and lower than the equity of mortgage
      pools taxable as non-publicly traded partnerships such as Fund I’s intended
      qualification prior to the REIT conversion, which generally are not subject
      to
      any U.S. federal income taxation on their income and gain.





**Our
      use of taxable REIT subsidiaries may have adverse U.S. federal income tax
      consequences.**





We
      must
      comply with various tests to continue to qualify as a REIT for U.S. federal
      income tax purposes, and our income from and investments in taxable REIT
      subsidiaries generally do not constitute permissible income and investments
      for
      purposes of the REIT qualification tests.  While we will attempt to
      ensure that our dealings with our taxable REIT subsidiaries will not adversely
      affect our REIT qualification, we cannot be assured that we will successfully
      achieve that result.  Furthermore, we may be subject to a 100% penalty
      tax, or our taxable REIT subsidiaries may be denied deductions, to the extent
      our dealings with our taxable REIT subsidiaries are not deemed to be arm’s
      length in nature.





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**We
      may endanger our REIT status if the distributions we receive from our taxable
      REIT subsidiaries exceed applicable REIT gross income
      tests.**





The
      annual gross income tests that must be satisfied to ensure REIT qualification
      may limit the amount of distributions that we can receive from our taxable
      REIT
      subsidiaries and still maintain our REIT status.  Generally, not more
      than 25% of our gross income can be derived from non-real estate related
      sources, such as distributions from a taxable REIT subsidiary.  If,
      for any taxable year, the distributions we received from our taxable REIT
      subsidiaries, when added to our other items of non-real estate related income,
      represent more than 25% of our total gross income for the year, we could be
      denied REIT status, unless we were able to demonstrate, among other things,
      that
      our failure of the gross income test was due to reasonable cause and not willful
      neglect.





**We
      may lose our REIT status if we issue shares under our stockholders’ rights
      plan.**





Under
      Section 562(c) of the Code, a REIT generally cannot make a distribution unless
      the distribution is pro rata, with no preference to any share of stock as
      compared to other shares of the same class of stock.  A REIT that is
      not in compliance with this requirement may lose its REIT
      status.  Under our stockholders’ rights plan, upon certain events,
      some holders of our common stock and not others will have the right to acquire
      shares of Series A preferred stock.  When effective, this right could
      be treated as a deemed distribution to those holders of our common stock
      entitled to the right with no distribution to other such
      holders.  Thus, this right, when effective, could be treated as a
      distribution that is not consistent with the requirements of Section 562(c)
      of
      the Code, which could result in the loss of our REIT qualification.





**RISK
      OF OWNERSHIP OF OUR COMMON STOCK**





**The
      market price and trading volume of our common stock may be
      volatile.**





The
      market price of our common stock since trading commenced on June 1, 2006 to
      June
      30, 2007, has ranged from $1.01 to $7.48.  We believe the price of our
      stock has been affected by, among other things, selling pressure from
      stockholders seeking immediate liquidity and the level of non-performing assets,
      which we own.  Our stock price may be highly volatile and subject to
      wide fluctuations.  In addition, the trading volume in our common
      stock may fluctuate and cause significant price variations to
      occur.  Our Company will be dissolved on December 31, 2019 unless the
      holders of a majority of our common stock determine otherwise.  As we
      move closer to the dissolution date, we expect to stop making new loans and
      we
      expect that our stock price will approach our book value per share.





We
      cannot
      be assured that the market price of our common stock will not fluctuate or
      decline significantly in the future.  Some of the factors, many of
      which are beyond our control, that could negatively affect our stock price
      or
      result in fluctuations in the price or trading volume of our common stock
      include:





·
            increases
                in loans defaulting or becoming non-performing or being written
                off;





·
            actual
                or anticipated variations in our quarterly operating results or
                distributions;





·
            publication
                of research reports about us or the real estate
                industry;





·
            changes
                in market valuations of similar
                companies;





·
            changes
                in tax laws affecting REITs;





·
            litigation;





·
            adverse
                market reaction to any increased indebtedness we incur in the future;
                and





·
            general
                market and economic conditions.





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**Market
      interest rates could have an adverse effect on our stock
      price.**





One
      of
      the factors that will influence the price of our common stock will be the
      dividend yield on our common stock (as a percentage of the price of our common
      stock) relative to market interest rates.  Thus, an increase in market
      interest rates may lead prospective purchasers of our common stock to expect
      a
      higher dividend yield, a lack of which could adversely affect the market price
      of our common stock.





**We
      are the subject of shareholder litigation which may depress the price of our
      stock.**





A
      number
      of lawsuits have been filed against us by shareholders who claim, among other
      things, that they were improperly denied dissenter’s rights in connection with
      the conversion of Fund I into a REIT.  We believe the suits are
      without merit and we intend to vigorously defend against such
      claims.  Nonetheless, the outcome of the lawsuits cannot be predicted
      at this time, nor can a meaningful evaluation be made of the potential impact
      upon us if the plaintiffs were to prevail in their claims.  The
      resulting uncertainty may depress the price of our stock.  Moreover,
      concerns about the potential diversion of our manager’s time to deal with these
      lawsuits may have an adverse effect upon the price of our stock.





**Our
      charter documents and Maryland law contain provisions that may delay, defer
      or
      prevent a change of control transaction.**





Our
      charter and bylaws and Maryland corporate law contain a number of provisions
      (as
      further described in exhibit 3.2 *Bylaws of the Registrant* under the
      Exhibit Index included in Part IV, Item 15 *Exhibits and Financial Statement
      Schedules* of this Report Form 10-K) that could delay, defer or prevent a
      transaction or a change in control of us that might involve a premium price
      for
      holders of our common stock or otherwise be in their best interests,
      including:





·
            *Ownership
                Limit*.  Our articles of incorporation, subject to certain
                exceptions, authorizes our board of directors to take such actions
                as are
                necessary and desirable to preserve our qualification as a REIT and
                to
                limit any person to actual or constructive ownership of no more than
                a
                9.8% of the number or value, whichever is more restrictive, of the
                outstanding shares of our stock, unless our board of directors waives
                this
                ownership limit.  However, our board of directors may not grant
                a waiver of the ownership limit that would permit a person to acquire
                more
                than 15% of our stock without exception.  The ownership limit
                may have the effect of precluding a change in control of us by a
                third
                party, even if such change in control would be in the interest of
                the our
                stockholders (and even if such change in control would not reasonably
                jeopardize our REIT status).





·
            *Staggered
                Board*.  Our board of directors is divided into three
                classes, with each class serving staggered three-year
                terms.  This classification of our board of directors may have
                the effect of delaying or preventing changes in our control or
                management.





·
            *Removal
                of Directors.*  Directors may be removed only for cause and
                only by the affirmative vote of stockholders holding at least a majority
                of the shares then outstanding and entitled to be cast for the election
                of
                directors.





·
            *Stockholders’
                Rights Plan*.  We have a stockholders’ rights plan that
                enables our board of directors to deter coercive or unfair takeover
                tactics and to prevent a person or a group from gaining control of
                us
                without offering a fair price to all stockholders.  Unless our
                board of directors approves the person’s or group’s purchase, after that
                person gains control of us, all other stockholders will have the
                right to
                purchase securities from us at a price that is less than their then
                fair
                market value.  Purchases by other stockholders would
                substantially reduce the value and influence of the shares of our
                common
                stock owned by the acquiring person or group.  Our board of
                directors, however, can prevent the stockholders’ rights plan from
                operating in this manner.  This gives our board of directors’
                significant discretion to approve or disapprove a person’s or group’s
                efforts to acquire a large interest in
                us.





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·
            *Duties
                of Directors with Respect to Unsolicited Takeovers*.  Under
                Maryland law, a director is required to perform his or her duties
                (a) in
                good faith, (b) in a manner he or she believes to be in the best
                interests
                of the corporation and (c) with the care that an ordinarily prudent
                person
                in a like position would use under similar
                circumstances.  Maryland law provides protection for Maryland
                corporations against unsolicited takeovers by, among other things,
                retaining the same standard of care in the performance of the duties
                of
                directors in unsolicited takeover situations.  The duties of
                directors of Maryland corporations do not require them to (a) accept,
                recommend or respond to any proposal by a person seeking to acquire
                control of the corporation, (b) authorize the corporation to redeem
                any
                rights under, or modify or render inapplicable, any stockholders
                rights
                plan, (c) make a determination under Maryland Business Combination
                Act or
                Maryland Control Share Acquisition Act or (d) act or fail to act
                solely
                because of the effect of the act or failure to act may have on an
                acquisition or potential acquisition of control of the corporation
                or the
                amount or type of consideration that may be offered or paid to the
                stockholders in an acquisition. Moreover, under Maryland law the
                act of
                the directors of a Maryland corporation relating to or affecting
                an
                acquisition or potential acquisition of control is not subject to
                any
                higher duty or greater scrutiny than is applied to any other act
                of a
                director.  Maryland law also contains a statutory presumption
                that an act of a director of a Maryland corporation satisfies the
                applicable standards of conduct for directors under Maryland
                law.





·
            *Maryland
                General Corporation Law*.  Certain provisions of the MGCL
                may have the effect of inhibiting a third party from making a proposal
                to
                acquire us or of impeding a change of control under circumstances
                that
                otherwise could provide the holders of shares of our common stock
                with the
                opportunity to realize a premium over the then-prevailing market
                price of
                such shares, including:





·
            “business
                combination” provisions that, subject to limitations, prohibit certain
                business combinations between us and an “interested stockholder” (defined
                generally as any person who beneficially owns 10% or more of the
                voting
                power of our shares or an affiliate or associate of ours who, at
                any time
                within the two-year period prior to the date in question, was the
                beneficial owner of 10% or more of our then outstanding voting shares)
                or
                an affiliate thereof for five years after the most recent date on
                which
                the stockholder becomes an interested stockholder, and thereafter
                imposes
                special appraisal rights and special stockholder voting requirements
                on
                these combinations; and





·
            “control
                share” provisions that provide that “control shares” of our company
                (defined as shares which, when aggregated with other shares controlled
                by
                the stockholder, entitle the stockholder to exercise one of three
                increasing ranges of voting power in electing directors) acquired
                in a
                “control share acquisition” (defined as the direct or indirect acquisition
                of ownership or control of “control shares”) have no voting rights except
                to the extent approved by our stockholders by the affirmative vote
                of at
                least two-thirds of all the votes entitled to be cast on the matter,
                excluding all interested shares.





·
            We
                have opted out of the control share provisions of the MGCL pursuant
                to a
                provision in our bylaws.  However, our board of directors may by
                amendment to our bylaws opt in to the control share provisions of
                the MGCL
                in the future.





·
            *Advance
                Notice of Director Nominations and Stockholder
                Proposals*.  Our bylaws impose certain advance notice
                requirements that must be met for nominations of persons for election
                to
                the board of directors and the proposal of business to be considered
                by
                stockholders.





**Our
      rights and the rights of our stockholders to take action against our directors
      and officers are limited.**





Maryland
      law provides that a director has no liability in that capacity if he or she
      performs his or her duties in good faith, in a manner he or she reasonably
      believes to be in our best interests and with the care that an ordinarily
      prudent person in a like position would use under similar
      circumstances.  Our charter limits the liability of our directors and
      officers to us and our stockholders for money damages, except for liability
      resulting from:





·
            actual
                receipt of an improper benefit or profit in money, property or services;
                or





·
            a
                final judgment based upon a finding of active and deliberate dishonesty
                by
                the director or officer that was material to the cause of action
                adjudicated.





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In
      addition, our articles of incorporation authorize us to obligate our company,
      and our bylaws require us, to indemnify our directors and officers for actions
      taken by them in those capacities to the maximum extent permitted by Maryland
      law.  As a result, we and our stockholders may have more limited
      rights against our directors and officers than might otherwise exist under
      common law.  Accordingly, in the event that actions taken in good
      faith by any of our directors or officers impede the performance of our company,
      stockholders’ ability to recover damages from such director or officer will be
      limited.





**ITEM
                2.**
            **UNREGISTEREDSALES
                OF EQUITY AND USE OF
                PROCEEDS**





None.




**ITEM
                  3.**
              **DEFAULTSUPON
                  SENIOR
                  SECURITIES**


None.





**ITEM
                4.**
            **SUBMISSIONOF
                MATTERS TO A VOTE OF SECURITY
                HOLDERS**





None.





**ITEM
                5.**
            **OTHERINFORMATION**





None.





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**ITEM
                6.**
            **EXHIBITS**





**EXHIBIT
      INDEX**





**Exhibit
                No.**
            
            **Description
                of Exhibits**2.1(2)
            
            Agreement
                and Plan of Merger between Vestin Fund I, LLC and the
                Registrant3.1(2)
            
            Articles
                of Incorporation of the Registrant3.2(2)
            
            Bylaws
                of the Registrant3.3(2)
            
            Form
                of Articles Supplementary of the Registrant4.1(2)
            
            Reference
                is made to Exhibits 3.1, 3.2 and 3.34.2(3)
            
            Specimen
                Common Stock Certificate4.3(2)
            
            Form
                of Rights Certificate10.1(2)
            
            Form
                of Management Agreement between Vestin Mortgage, Inc. and the
                Registrant10.2(2)
            
            Form
                of Rights Agreement between the Registrant and the rights
                agent10.3(1)
            
            Assignment
                Agreement, dated January 23, 2004, by and between Vestin Mortgage,
                Inc.,
                Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc.
                and
                Owens Mortgage Investment Fund10.4(1)
            
            Intercreditor
                Agreement, dated January 17, 2003, by and among Vestin Mortgage,
                Inc.,
                Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life Assurance
                Company10.5(1)
            
            Intercreditor
                Agreement, dated April 22, 2004, by and between Vestin Mortgage,
                Inc. and
                Owens Mortgage Investment Fund10.6(1)
            
            Intercreditor
                Agreement, dated June 24, 2004, by and between Vestin Mortgage, Inc.
                and
                Owens Mortgage Investment Fund10.7(1)
            
            Participation
                Agreement, dated May 13, 2004, by and among the Registrant, Vestin
                Fund I,
                LLC, Vestin Fund II, LLC and Royal Bank of America10.8(5)
            
            Intercreditor
                Agreement, dated October 13, 2006, by and between Vestin Originations,
                Inc., Vestin Mortgage, Inc. Vestin Realty Mortgage I, Inc., Vestin
                Realty
                Mortgage II, Inc., Vestin Fund III, LLC, Owens Financial Group, Inc.
                and
                Owens Mortgage Investment Fund21.1(3)
            
            List
                of subsidiaries of the Registrant31.1
            
            Section
                302 Certification of Michael V.
                Shustek31.2
            
            Section
                302 Certification of Rocio
                Revollo32
            
            Certification
                Pursuant to U.S.C. 18 Section
                135099.2R(4)
            
            Vestin
                Realty Mortgage I, Inc. Code of Business Conduct and
                Ethics





(1)
            
            Incorporated
                herein by reference to our Form S-4 Registration Statement filed
                on May
                27, 2005 (File No. 333-125347).(2)
            
            Incorporated
                herein by reference to Post-Effective Amendment No. 3 to our Form
                S-4
                Registration Statement filed on January 4, 2006 (File No.
                333-125347).(3)
            
            Incorporated
                herein by reference to Post-Effective Amendment No. 4 to our Form
                S-4
                Registration Statement filed on January 31, 2006 (File No.
                333-125347).(4)
            
            Incorporated
                herein by reference to the Transition Report on Form 10-K for the
                ten
                month transition period ended April 30, 2006 filed on June 28, 2006
                (File
                No. 000-51964)(5)
            
            Incorporated
                herein by reference to the Quarterly Report on Form 10-Q for the
                three
                months ended September 30, 2006 filed on October 26, 2006 (File No.
                000-51964)








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**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned thereunto duly authorized.





**Vestin
                Realty Mortgage I, Inc.**By:
            */s/
                Michael V. Shustek*Michael
                V. ShustekPresident
                and Chief Executive OfficerDate:
            August
                7, 2007





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





**Signature**
            
            **Capacity**
            
            **Date***/s/
                Michael V. Shustek*
            
            President
                and Chief Executive Officer and Director
            
            August
                7, 2007Michael
                V. Shustek
            
            (Principal
                Executive Officer)*/s/
                Rocio Revollo*
            
            Chief
                Financial Officer
            
            August
                7, 2007Rocio
                Revollo
            
            (Principal
                Financial and Accounting Officer)*/s/
                John E. Dawson*
            
            Director
            
            August
                7, 2007John
                E. Dawson*/s/
                Robert J. Aalberts*
            
            Director
            
            August
                7, 2007Robert
                J. Aalberts*/s/
                Fredrick J. Zaffarese Leavitt*
            
            Director
            
            August
                7, 2007Fredrick
                J. Zaffarese Leavitt*/s/
                Roland M. Sansone*
            
            Director
            
            August
                7, 2007Roland
                M. Sansone








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