**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 September 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.)
 
 **6149
        SOUTH RAINBOW BOULVARD, LAS VEGAS, NEVADA 89118**
 (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
        October 31, 2007, there were 6,872,867 shares of the Company’s Common Stock
        outstanding.
 
 
  
  **TABLE
        OF CONTENTS**
 
 **Page**Part
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Consolidated
                  Financial StatementsConsolidated
                  Balance Sheets as of September 30, 2007
                  (unaudited) and December 31, 2006
              1Consolidated
                  Statements of Operations (unaudited) for the Three
                  and Nine Months Ended September 30, 2007 and 2006
              2Consolidated
                  Statements of Equity and Other Comprehensive
                  Income (unaudited) for the Nine Months Ended September 30,
                  2007
              3Consolidated
                  Statements of Cash Flows (unaudited) for the Nine
                  Months Ended September 30, 2007 and 2006
              4Notes
                  to Consolidated Financial Statements
                  (unaudited)
              6Report
                  of Independent Registered Public Accounting
                  Firm
              27Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              28Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              38Item
                  4.
              Controls
                  and Procedures
              39Item
                  4T
              Controls
                  and Procedures
              39Part
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              40Item
                  1A.
              Risk
                  Factors
              40Item
                  2.
              Unregistered
                  Sales of Equity – Securities and Use of
                  Proceeds
              50Item
                  3.
              Defaults
                  Upon Senior Securities
              50Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              50Item
                  5.
              Other
                  Information
              50Item
                  6.
              Exhibits
              51SIGNATURES
              52Exhibit
                  31.1Exhibit
                  31.2Exhibit
                  32
 
 
  *Table
            of Contents*
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
                  1.**
              **CONSOLIDATED
                  FINANCIAL STATEMENTS**
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  BALANCE SHEETS****ASSETS****September
                  30, 2007**
              
              
              **December
                  31, 2006****(Unaudited)**AssetsCash
              
              $
              6,488,000
              
              
              $
              1,523,000Certificates
                  of deposit
              
              
              --
              
              
              
              150,000Investment
                  in marketable securities - related party
              
              
              2,880,000
              
              
              
              1,953,000Interest
                  and other receivables
              
              
              829,000
              
              
              
              938,000Notes
                  receivable, net of allowance of $684,000 at September 30, 2007
                  and
                  $885,000 at December 31, 2006
              
              
              --
              
              
              
              102,000Real
                  estate held for sale
              
              
              3,527,000
              
              
              
              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 $4,579,000
                  at
                  September 30, 2007 and $4,534,000 at December 31, 2006
              
              
              42,170,000
              
              
              
              48,631,000Assets
                  under secured borrowings
              
              
              --
              
              
              
              310,000Due
                  from related parties
              
              
              --
              
              
              
              1,000Other
                  assets
              
              
              136,000
              
              
              
              124,000Total
                  assets
              
              $
              63,941,000
              
              
              $
              65,332,000**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**LiabilitiesAccounts
                  payable and accrued liabilities
              
              $
              897,000
              
              
              $
              307,000Due
                  to related parties
              
              
              20,000
              
              
              
              --Secured
                  borrowings
              
              
              --
              
              
              
              310,000Notes
                  payable
              
              
              --
              
              
              
              22,000Deposit
                  liability
              
              
              1,672,000
              
              
              
              1,255,000Unearned
                  revenue
              
              
              --
              
              
              
              69,000Dividend
                  payable
              
              
              323,000
              
              
              
              1,030,000Total
                  liabilities
              
              
              2,912,000
              
              
              
              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; 6,872,601
                  share
                  issued and outstanding at September 30, 2007 and 6,869,790 shares
                  issued
                  and outstanding at December 31, 2006
              
              
              1,000
              
              
              
              1,000Additional
                  paid in capital
              
              
              62,251,000
              
              
              
              62,235,000Accumulated
                  deficit
              
              
              (1,046,000
              )
              
              
              (7,000
              )Accumulated
                  other comprehensive income (loss)
              
              
              (177,000
              )
              
              
              110,000Total
                  stockholders' equity
              
              
              61,029,000
              
              
              
              62,339,000Total
                  liabilities and stockholders' equity
              
              $
              63,941,000
              
              
              $
              65,332,000
 
  The
            accompanying notes are an integral part of these consolidated
            statements
 See
            review report of Independent Registered Public Accounting Firm
 -
            1
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(UNAUDITED)****For
                  The Three Months Ended**
              
              
              **For
                  The Three Months Ended**
              
              
              **For
                  The Nine Months Ended**
              
              
              **For
                  The Nine Months Ended****9/30/2007**
              
              
              **9/30/2006**
              
              
              **9/30/2007**
              
              
              **9/30/2006****Revenues**Interest
                  income from investment in real estate loans
              
              $
              984,000
              
              
              $
              1,232,000
              
              
              $
              3,315,000
              
              
              $
              3,318,000Dividend
                  income - related party
              
              
              90,000
              
              
              
              --
              
              
              
              195,000
              
              
              
              --Recovery
                  of allowance for doubtful notes receivable
              
              
              23,000
              
              
              
              8,000
              
              
              
              281,000
              
              
              
              21,000Other
                  income
              
              
              68,000
              
              
              
              110,000
              
              
              
              280,000
              
              
              
              272,000Total
                  revenues
              
              
              1,165,000
              
              
              
              1,350,000
              
              
              
              4,071,000
              
              
              
              3,611,000**Operating
                  expenses**Management
                  fees-related party
              
              
              69,000
              
              
              
              69,000
              
              
              
              207,000
              
              
              
              207,000Provision
                  for loan loss
              
              
              183,000
              
              
              
              --
              
              
              
              183,000
              
              
              
              3,000,000Interest
                  expense
              
              
              2,000
              
              
              
              2,000
              
              
              
              15,000
              
              
              
              74,000Professional
                  fees
              
              
              431,000
              
              
              
              202,000
              
              
              
              775,000
              
              
              
              517,000Professional
                  fees - related party
              
              
              7,000
              
              
              
              14,000
              
              
              
              26,000
              
              
              
              40,000Provision
                  of doubtful accounts related to receivable
              
              
              86,000
              
              
              
              --
              
              
              
              86,000
              
              
              
              --Other
              
              
              115,000
              
              
              
              103,000
              
              
              
              367,000
              
              
              
              271,000Total
                  operating expenses
              
              
              893,000
              
              
              
              390,000
              
              
              
              1,659,000
              
              
              
              4,109,000**Income
                  (loss) from operations**
              
              
              272,000
              
              
              
              960,000
              
              
              
              2,412,000
              
              
              
              (498,000
              )**Income
                  from real estate held for sale**Net
                  gain on sale of real estate held for sale
              
              
              --
              
              
              
              41,000
              
              
              
              --
              
              
              
              43,000Expenses
                  related to real estate held for sale
              
              
              (154,000
              )
              
              
              (1,000
              )
              
              
              (369,000
              )
              
              
              (20,000
              )Write
                  down on real estate held for sale
              
              
              (13,000
              )
              
              
              --
              
              
              
              (162,000
              )
              
              
              --Total
                  income (loss) from real estate held for sale
              
              
              (167,000
              )
              
              
              40,000
              
              
              
              (531,000
              )
              
              
              23,000Income
                  before provision for income taxes
              
              
              105,000
              
              
              
              1,000,000
              
              
              
              1,881,000
              
              
              
              (475,000
              )Provision
                  for income taxes
              
              
              --
              
              
              
              15,000
              
              
              
              --
              
              
              
              15,000**NET
                  INCOME (LOSS)**
              
              $
              105,000
              
              
              $
              985,000
              
              
              $
              1,881,000
              
              
              $
              (490,000
              )Basic
                  and diluted earnings (loss) per weighted average common share /
                  membership
                  unit
              
              $
              0.02
              
              
              $
              0.14
              
              
              $
              0.27
              
              
              $
              (0.07
              )Dividends
                  declared per common share / cash distribution to members per membership
                  unit
              
              $
              0.14
              
              
              $
              0.08
              
              
              $
              0.43
              
              
              $
              0.34Weighted
                  average common shares / membership units
              
              
              6,872,140
              
              
              
              6,868,907
              
              
              
              6,871,260
              
              
              
              6,887,342
 
 
 
 
  The
            accompanying notes are an integral part of these consolidated
            statements
 See
            review report of Independent Registered Public Accounting Firm
 -
            2
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE
                  INCOME****FOR
                  THE NINE MONTHS ENDED SEPTEMBER 30, 2007****(UNAUDITED)****Common
                  Stock****Number
                  of Shares**
              
              
              **Amount**
              
              
              **Additional
                  Paid-in-Capital**
              
              
              **Accumulated
                  deficit**
              
              
              **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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,881,000
              
              
              
              
              
              
              
              1,881,000Unrealized
                  Loss on Marketable Securities - Related Party
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (287,000
              )
              
              
              (287,000
              )Comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,594,000Dividends
                  Declared to Stockholders
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,920,000
              )
              
              
              
              
              
              
              (2,920,000
              )Reinvestment
                  of Dividends
              
              
              2,811
              
              
              
              --
              
              
              
              16,000
              
              
              
              
              
              
              
              
              
              
              
              16,000Stockholders'
                  Equity at September 30, 2007 **(Unaudited)**
              
              
              6,872,601
              
              
              $
              1,000
              
              
              $
              62,251,000
              
              
              $
              (1,046,000
              )
              
              $
              (177,000
              )
              
              $
              61,029,000
 
 
  The
            accompanying notes are an integral part of these consolidated
            statements
 See
            review report of Independent Registered Public Accounting Firm
 -
            3
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****For
                  The Nine Months Ended**
              
              
              **For
                  The Nine Months Ended****September
                  30, 2007**
              
              
              **September
                  30, 2006****Cash
                  flows from operating activities:**Net
                  income (loss)
              
              $
              1,881,000
              
              
              $
              (490,000
              )Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:
              
              
              --
              
              
              
              --Provision for
                  doubtful accounts related to receivable
              
              
              86,000
              
              
              
              --Write
                  down of real estate held for sale
              
              
              162,000
              
              
              
              --Gain
                  on sale of real estate held for sale
              
              
              --
              
              
              
              (41,000
              )Recovery
                  of allowance for doubtful notes receivable
              
              
              (281,000
              )
              
              
              (21,000
              )Provision
                  for loan loss
              
              
              183,000
              
              
              
              3,000,000Gain
                  on sale of marketable securities
              
              
              --
              
              
              
              (1,000
              )Amortized
                  interest income
              
              
              (69,000
              )
              
              
              (91,000
              )Provision
                  for income taxes
              
              
              --
              
              
              
              15,000Change
                  in operating assets and liabilities:
              
              
              --
              
              
              
              --Interest
                  and other receivables
              
              
              109,000
              
              
              
              31,000Due
                  to/from related parties
              
              
              21,000
              
              
              
              256,000Other
                  assets
              
              
              174,000
              
              
              
              38,000Accounts
                  payable and accrued liabilities
              
              
              590,000
              
              
              
              221,000Net
                  cash provided  by operating activities
              
              
              2,856,000
              
              
              
              2,917,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans
              
              
              (5,816,000
              )
              
              
              (35,275,000
              )Purchase
                  of investments in real estate loans from:VRM
                  II
              
              
              --
              
              
              
              (500,000
              )Third
                  parties
              
              
              --
              
              
              
              (75,000
              )Proceeds
                  from loan payoffs
              
              
              12,232,000
              
              
              
              30,966,000Sale
                  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
              
              
              --
              
              
              
              2,538,000Legal
                  expenses paid and applied against loan allowance
              
              
              (138,000
              )
              
              
              (235,000
              )Proceeds
                  from note receivable
              
              
              297,000
              
              
              
              30,000Purchase
                  of marketable securities - related party
              
              
              (1,214,000
              )
              
              
              (1,859,000
              )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
              
              
              
              2,682,000Proceeds
                  from unearned revenue
              
              
              --
              
              
              
              100,000Deposit
                  liability
              
              
              417,000
              
              
              
              644,000Net
                  cash provided (used) by investing activities
              
              $
              5,928,000
              
              
              $
              (474,000
              )
 
  The
            accompanying notes are an integral part of these consolidated
            statements
 See
            review report of Independent Registered Public Accounting Firm
 -
            4
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGE I, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****For
                  The Nine Months Ended**
              
              
              **For
                  The Nine Months Ended****September
                  30, 2007**
              
              
              **September
                  30, 2006****Cash
                  flows from financing activities:**Principal
                  payments on notes payable
              
              $
              (208,000
              )
              
              $
              (987,000
              )Dividends
                  paid to stockholders, net of reinvestments
              
              
              (3,535,000
              )
              
              
              (539,000
              )Dividends
                  paid to stockholders, net of reinvestments - related party
              
              
              (76,000
              )
              
              
              (8,000
              )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
              
              
              (3,819,000
              )
              
              
              (9,604,000
              )**NET
                  CHANGE IN CASH**
              
              
              4,965,000
              
              
              
              (7,161,000
              )**Cash,
                  beginning of period**
              
              
              1,523,000
              
              
              
              7,884,000**Cash,
                  end of period**
              
              $
              6,488,000
              
              
              $
              723,000**Supplemental
                  disclosures of cash flows information:**Income
                  taxes paid
              
              $
              --
              
              
              $
              --Interest
                  paid
              
              $
              15,000
              
              
              $
              73,000Non-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
              
              $
              5,281,000
              
              
              $
              --Unearned
                  revenue from loans rewritten with same or similar property as
                  collateral
              
              $
              69,000
              
              
              $
              134,000Note
                  payable relating to prepaid E & O insurance policy
              
              $
              --
              
              
              $
              194,000Reinvestment
                  of dividends
              
              $
              16,000
              
              
              $
              2,000Reinvestment
                  of member distributions
              
              $
              --
              
              
              $
              129,000Unrealized
                  gain on marketable securities - related party
              
              $
              (287,000
              )
              
              $
              112,000
 
 
  The
            accompanying notes are an integral part of these consolidated
            statements
 See
            review report of Independent Registered Public Accounting Firm
 -
            5
            -
 *Table
            of Contents*
  
 **VESTIN
        REALTY MORTGAGEI, INC**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SEPTEMBER
        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.  On September 1, 2007, the servicing of real estate
        loans was assumed by our manager.
 
 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 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. (“inVestin”),
        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.
 
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            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.
 
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            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 and 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 approve 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.
 
 Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
              Management
                  commits to a plan to sell the
                  properties;
  See
            review report of Independent Registered Public Accounting Firm
 -
            8
            -
 *Table
            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
        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.
 
 **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 for 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”).
  See
            review report of Independent Registered Public Accounting Firm
 -
            9
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 *Table
            of Contents*
  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 September 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
        September 30, 2007 and December 31, 2006, the estimated fair values of the
        real
        estate loans, including seller financed loans, were approximately $47.7 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.
 
 **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 three and nine months ended
        September 30, 2007.  The following is a computation of the EPS data
        for the three and nine months ended September 30, 2007:
  See
            review report of Independent Registered Public Accounting Firm
 -
            10
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 *Table
            of Contents*
  
 **For
                  the Three**
                **Months
                  Ended**
                **September
                  30, 2007**
              
              
              **For
                  the Nine**
                **Months
                  Ended**
                **September
                  30, 2007**Net
                  income available to common stockholders
              
              $
              105,000
              
              
              $
              1,881,000Weighted
                  average number of common shares outstanding during the
                  period
              
              
              6,872,140
              
              
              
              6,871,260Basic
                  and diluted earnings per weighted average common share
              
              $
              0.02
              
              
              $
              0.27
 
 **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 five months ended September
        30,
        2006 and total earnings per weighted average share/membership unit for the
        nine
        months ended September 30, 2006:
 
 **For
                  the Four**
                **Months
                  Ended**
                **April
                  30, 2006**
              
              
              **For
                  the Five**
                **Months
                  Ended**
                **September
                  30, 2006**
              
              
              **For
                  the Nine**
                **Months
                  Ended**
                **September
                  30, 2006**Net
                  income (loss) available to common stockholders / members
              
              $
              (2,016,000
              )
              
              $
              1,526,000
              
              
              $
              (490,000
              )Weighted
                  average number of common shares / units outstanding during the
                  period
              
              
              6,910,950
              
              
              
              6,868,841
              
              
              
              6,887,342Basic
                  and diluted earnings (loss) per weighted average common share /
                  membership
                  unit
              
              $
              (0.29
              )
              
              $
              0.22
              
              
              $
              (0.07
              )
 
 **Common
        Stock Dividends**
 
 Cash
        dividends declared during the nine months ended September 30, 2007, totaled
        approximately $0.43 per common share.
 
 On
        October 16, 2007, the Board of Directors declared a monthly cash dividend
        of
        $0.047 per share for the month of October 2007, that will be paid on November
        29, 2007, to the stockholders of record as of November 9, 2007.
 
 **Segments**
 
 We
        operate as one business segment.
 
 **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.
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            review report of Independent Registered Public Accounting Firm
 -
            11
            -
 *Table
            of Contents*
  Our
        taxable income may substantially exceed or be less than our net income as
        determined based on GAAP, because, differences in GAAP and taxable net income
        consist primarily of allowances for loan losses or doubtful account, write
        downs
        on real estate held for sale, capital gains and losses, and deferred
        income.
 
 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 for the nine months ended September 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 September 30, 2007 and December 31,
        2006, we had approximately $6.3 million and $1.5 million, respectively, in
        excess of the federally insured limits.
 
 As
        of
        September 30, 2007, 44%, 17%, 10% and 7% of our loans were in Nevada, Hawaii,
        Arizona and California, respectively, compared to 35%, 15%, 9% and 12%, 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
        September 30, 2007, the aggregate amount of loans to our three largest borrowers
        represented 37.16% 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 11.0% and 14.0%,
        with
        an aggregate outstanding balance of approximately $20.1 million and maturing
        through September 2007.  At December 31, 2006, the aggregate amount of
        loans to our three 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
        9% and 14%, with an aggregate outstanding balance of approximately $20.3
        million.  The loans in Hawaii described above referred to the
        RightStar loans discussed in Note D – *Investments in Real Estate
        Loans*.  We have a significant concentration of credit risk with
        our largest borrowers, any additional defaults by 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
        September 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
        September 30, 2007, this loan had a balance of approximately $7.4
        million.
 
 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 September 30, 2007, we had approximately $7.6 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 $64.5
        million.  These loans had interest reserves of approximately $5.7
        million, of which our portion was approximately $0.5 million.
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            review report of Independent Registered Public Accounting Firm
 -
            12
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 *Table
            of Contents*
  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
        September 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 9% 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 September 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
              
              
              3
              
              
              $
              2,750,000
              
              
              
              12.64%
              
              
              
              5.08%
              
              
              
              55.28%Commercial
              
              
              13
              
              
              
              34,346,000
              
              
              
              11.83%
              
              
              
              63.43%
              
              
              
              84.61%Construction
              
              
              8
              
              
              
              1,951,000
              
              
              
              11.49%
              
              
              
              3.60%
              
              
              
              74.05%Land
              
              
              8
              
              
              
              14,104,000
              
              
              
              12.67%
              
              
              
              26.04%
              
              
              
              66.22%Residential
              
              
              1
              
              
              
              1,000,000
              
              
              
              12.00%
              
              
              
              1.85%
              
              
              
              80.00%33
              
              
              $
              54,151,000
              
              
              
              12.08%
              
              
              
              100.00%
              
              
              
              77.87%
 
 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.
 
 (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.
  See
            review report of Independent Registered Public Accounting Firm
 -
            13
            -
 *Table
            of Contents*
  
 **September
                  30, 2007 Balance**
              
              
              **December
                  31, 2006 Balance**Balance
                  per loan portfolio
              
              $
              54,151,000
              
              
              $
              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
              
              
              509,000
              
              
              
              379,000Allowance
                  for loan losses
              
              
              (4,579,000
              )
              
              
              (4,534,000
              )Balance
                  per consolidated balance sheet
              
              $
              42,170,000
              
              
              $
              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 September 30,
        2007
        and December 31, 2006:
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              
              **September
                  30, 2007 Balance***
              
              
              **Portfolio**
                **Percentage**
              
              
              **Number
                  of Loans**
              
              
              **December
                  31, 2006**
                **Balance***
              
              
              **Portfolio**
                **Percentage**First
                  deeds of trust
              
              
              32
              
              
              $
              53,851,000
              
              
              
              99.45%
              
              
              
              31
              
              
              $
              60,359,000
              
              
              
              99.44%Second
                  deeds of trust
              
              
              1
              
              
              
              300,000
              
              
              
              0.55%
              
              
              
              2
              
              
              
              338,000
              
              
              
              0.56%33
              
              
              $
              54,151,000
              
              
              
              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 September 30, 2007:
 
 October
                  2007 – December 2007
              
              $
              39,252,000January
                  2008 – March 2008
              
              
              9,633,000April
                  2008 – June 2008
              
              
              --July
                  2008 – September 2008
              
              
              5,266,000Thereafter
              
              
              --Total
              
              $
              54,151,000
 
 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 September 30, 2007 and December 31, 2006:
 
 **September
                  30, 2007 Balance***
              
              
              **Portfolio
                  Percentage**
              
              
              **December
                  31, 2006 Balance***
              
              
              **Portfolio
                  Percentage**Arizona
              
              $
              5,500,000
              
              
              
              10.16%
              
              
              $
              5,509,000
              
              
              
              9.08%California
              
              
              3,750,000
              
              
              
              6.92%
              
              
              
              6,988,000
              
              
              
              11.51%Hawaii
              
              
              9,307,000
              
              
              
              17.19%
              
              
              
              9,307,000
              
              
              
              15.33%Nevada
              
              
              23,738,000
              
              
              
              43.84%
              
              
              
              21,310,000
              
              
              
              35.11%New
                  York
              
              
              2,819,000
              
              
              
              5.20%
              
              
              
              3,246,000
              
              
              
              5.35%Oklahoma
              
              
              1,937,000
              
              
              
              3.58%
              
              
              
              1,937,000
              
              
              
              3.19%Oregon
              
              
              3,700,000
              
              
              
              6.83%
              
              
              
              5,200,000
              
              
              
              8.57%Texas
              
              
              3,000,000
              
              
              
              5.54%
              
              
              
              4,168,000
              
              
              
              6.87%Washington
              
              
              400,000
              
              
              
              0.74%
              
              
              
              3,032,000
              
              
              
              4.99%Total
              
              $
              54,151,000
              
              
              
              100.00%
              
              
              $
              60,697,000
              
              
              
              100.00%
 
 *  Please
        see (2) above
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            14
            -
 *Table
            of Contents*
  At
        September 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, Inc. (Part I & Part
        II), Monterrey Associates LP, Forest Development LLC, Pirates Lake, Ltd,
        Jeffrey's Court, LLC and V & M Homes at the Palms, Inc.  These
        loans are currently carried on our books at a value of approximately $11.8
        million, net of allowance for loan losses of approximately $4.4 million for
        the
        RightStar loans, which does not include the allowance for performing
        loans.  These loans have been placed on non-accrual of interest status
        and are the subject of pending foreclosure proceedings.
 
 ·
              RightStar,
                  Inc. (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 non-performing loan which was originally
                  secured by
                  various real estate collateral, including a 248 unit apartment
                  complex in
                  Oklahoma City, Oklahoma.  The outstanding balance on the loan is
                  approximately $4.4 million, of which our portion is approximately
                  $1.2
                  million.  Interest payments on the loan are 13 months in
                  arrears.  Our manager brought foreclosure and other legal
                  proceedings to protect our interest in the collateral.  The
                  borrowers have alleged that our lien on the Oklahoma City apartment
                  complex was extinguished as a result of legal actions commenced
                  on our
                  behalf with respect to other collateral securing the non-performing
                  loan.   We are vigorously contesting their position;
                  however, we cannot determine at this time the outcome of these
                  legal
                  proceedings.
 
 ·
              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 eleven months in arrears in payment of
                  interest.  We commenced foreclosure proceedings and 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 intentional
                  interference with contractual relations, bad faith, breach of contract,
                  conversion, undue and improper control and interference over borrower’s
                  business.  They are seeking injunctive relief, monetary damages,
                  and punitive damages.  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.  In September
                  2007, Forest Development filed a lawsuit in the United States Bankruptcy
                  Court for the District of Nevada, against us, VRM II, Fund I, Fund
                  II,
                  Fund III, Vestin Mortgage, Inc. and Vestin Originations, Inc. (the
                  “Defendants”) alleging breach of contract, breach of the implied covenant
                  of good faith and fair dealing, and unjust enrichment, which claims
                  are
                  substantially the same as was filed in the State Court
                  action.  We believe the allegations are without merit, and we
                  have adequate defenses.  A settlement conference is currently
                  scheduled for November 9, 2007 between the Defendants and Forest
                  Development, LLC.  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.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            15
            -
 *Table
            of Contents*
  
 ·
              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 five months in arrears in payments
                  of interest.  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 were due
                  on
                  October 1, 2007.  On October 2, 2007, the borrower was in
                  default of the settlement and loan agreements. Subsequently the
                  borrower
                  filed for protection under Chapter 11 of the United States Bankruptcy
                  Court for the Southern District of Texas.  Our manager has
                  instructed Bankruptcy counsel to seek relief from the automatic
                  stay and
                  to seek dismissal of Pirate’s Lake Ltd. Chapter 11 proceedings so that
                  foreclosure proceedings may proceed.  A hearing is currently
                  scheduled for November 7, 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.
 
 ·
              Jeffrey's
                  Court, LLC, is a loan to provide financing for the development
                  of 4.92
                  acres of land into 119 condominium units in Las Vegas, NV, with
                  an
                  outstanding balance of approximately $5.1 million of which our
                  portion is
                  $1.0 million dollars.  The loan is two months in arrears in
                  payment of interest and is secured by a first lien on the property
                  and
                  guaranteed by the borrower.  Our manager has commenced
                  foreclosure proceedings.  We intend to bring legal action
                  against the guarantors of this 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.
 
 ·
              V
                  & M Homes at the Palms, Inc., is a loan, with a variable interest
                  rate, to provide acquisition financing for an 80 acre parcel of
                  land in
                  Florence, AZ, with an outstanding balance of approximately $3.9
                  million of
                  which our portion is approximately $1.0 million.  The loan is
                  one month in arrears in payment of interest and is secured by a
                  first lien
                  on the property and guaranteed by the borrower.  Our manager has
                  commenced foreclosure proceedings.  We intend to bring legal
                  action against the guarantors of this 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.
 
 The
        following schedule summarizes the non-performing loans as of September 30,
        2007:
 
 **Description
                  of Collateral**
              
              **Balance
                  at**
                **September
                  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
              
              
              42
              
              
              24%
                  of Part I4
                  cemeteries and 8 mortuaries in Hawaii Part II**
              
              
              4,892,000
              
              3/31/2004
              
              
              42
              
              
              35%
                  of Part II248-unit
                  apartment complex in Oklahoma City, OK
              
              
              1,237,000
              
              9/1/2006
              
              
              13
              
              
              
              28%2
                  single family residences and 4 lots in Mt. Charleston, NV
              
              
              631,000
              
              10/27/2006
              
              
              11
              
              
              
              24%46.75
                  acres of land located in Galveston, TX
              
              
              3,000,000
              
              6/30/2007
              
              
              5
              
              
              
              35%4.92
                  acres of land in Las Vegas, NV
              
              
              1,000,000
              
              7/17/2007
              
              
              2
              
              
              
              20%80
                  acre parcel of land in Florence, AZ
              
              
              1,000,000
              
              8/16/2007
              
              
              1
              
              
              
              26%$
              16,175,000
 
 **  Please
        refer to (3) *Specific Reserve Allowance*below.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            16
            -
 *Table
            of Contents*
  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 September 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.
 
 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 nine
        months
        ended September 30, 2007:
 
 **Description**
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              
              **Specific
                  Reserve Allocation**
              
              
              **RightStar
                  Legal Reserve**
              
              
              **Balance
                  at**
                **September
                  30, 2007**Specific
                  allowance (3)
              
              $
              4,534,000
              
              
              $
              183,000
              
              
              $
              (138,000
              )
              
              
              4,579,000Total
              
              $
              4,534,000
              
              
              $
              183,000
              
              
              $
              (138,000
              )
              
              $
              4,579,000
 
 **(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
              
              
              
              5,657,000Total
              
              $
              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.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            17
            -
 *Table
            of Contents*
  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.
 
 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, we, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated
        announced that an arrangement had 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 to VRM II, Vestin Mortgage and
        us.  We, VRM II, Vestin Mortgage, the State of Hawaii 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.  We, VRM II, Vestin Mortgage and the State of Hawaii
        have received offers and are currently requesting, entertaining, and reviewing
        bids on the RightStar properties.  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 September 30, 2007,
        our specific reserve allowance on the RightStar loans totaled approximately
        $4.4
        million.
 
 *Peoria
        180, LLC Loan Allowance*– During the nine months ended September 30, 2007,
        our manager provided a specific reserve allowance, related to a land loan
        on
        property located in Glendale, AZ, of $1.6 million, of which our portion was
        $183,000.  This specific reserve allowance was based on an updated
        appraisal of the underlying collateral for this loan, obtained by our manager
        during October 2007.  As of September 30, 2007, the loan was
        performing as required.  Our manager will continue to evaluate our
        position in the loan.
 
 In
        addition, as of September 30, 2007, our manager granted extensions on 13
        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.
  See
            review report of Independent Registered Public Accounting Firm
 -
            18
            -
 *Table
            of Contents*
  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 13 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 September 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 September 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.
 
 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 September 30, 2007 and December 31, 2006 approximately
        $6.9 million and $3.4 million, respectively, in non-performing loans had
        no
        specific allowance for loan losses.  As of September 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, which does not include the allowance for performing
        loans.  At September 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, Pirates Lake,
        Ltd, Jeffrey's Court, LLC and V & M Homes at the Palms,
        Inc.  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
        September 30, 2007, we owned 585,349 shares of VRM II’s common stock,
        representing approximately 1.52% of their total outstanding common
        stock.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            19
            -
 *Table
            of Contents*
  **NOTE
        F — REAL ESTATE HELD FOR SALE**
 
 At
        September 30, 2007, we
        held one
        property with a total carrying value of approximately $3.5 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 nine
        months
        ended September 30, 2007:
 
 **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**
                **September
                  30, 2007**480
                  residential building lots  & 2 family dwellings in Cathedral
                  City, CA **(1)**
              12/21/2006
              
              
              12%
              
              
              $
              3,689,000
              
              
              $
              (162,000
              )
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              3,527,000Total
              
              
              
              
              
              
              $
              3,689,000
              
              
              $
              (162,000
              )
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              3,527,000
 
 (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.  During
                  the three months ended September 30, 2007, our manager continued
                  to
                  evaluate the carrying value of the acquired property and related
                  liabilities. As of September 30, 2007, our manager estimated the
                  net
                  realizable value of the asset totaled $28,355,000, of which our
                  portion
                  totaled $3,527,000, and estimated liabilities associated with this
                  asset
                  totaled $2,700,000, of which our portion totaled $336,000. Based
                  on these
                  estimates, our write downs on real estate held for sale for this
                  property
                  totaled $13,000 and $162,000 for the three and nine months ended
                  September
                  30, 2007, respectively. We also recognized expenses related to
                  real estate
                  held for sale for this property which totaled $112,000 and $336,000
                  for
                  the three and nine months ended September 30, 2007,
                  respectively.
 
 **NOTE
        G — REAL ESTATE HELD FOR SALE – SELLER FINANCED**
 
 At
        September 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 nine months ended September 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 nine months ended September 30, 2007:
 
 **Description**
              **Date
                  Acquired**
              
              **Percentage
                  of Ownership**
              
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              
              **Acquisitions**
              
              
              **Sales**
              
              
              **Gain
                  (Loss) on Sale**
              
              
              **Balance
                  at**
                **September
                  30, 2007**Assisted
                  living facility in Las Vegas, Nevada **(1)**
              9/23/2004
              
              
              52%
              
              
              $
              7,911,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              7,911,000Total
              
              
              
              
              
              
              $
              7,911,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              7,911,000
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            20
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 *Table
            of Contents*
  
 **(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 September 30, 2007, we had received
                  approximately $1.7 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**
 
 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 nine months ended September 30,
        2007
        and 2006, were $69,000 and $207,000 for each period, respectively.
 
 As
        of
        September 30, 2007, our manager owned 100,000 of our common
        shares.  For the three and nine months ended September 30, 2007, we
        declared approximately $14,000 and $43,000, 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.  For
        the five months ended September 30, 2006, we declared approximately $8,000
        in
        dividends payable to our manager based on the number of shares our manager
        held
        on the dividend record dates.
 
 **Transactions
        with Other Related Parties**
 
 As
        of
        September 30, 2007, we owned 585,349 common shares of VRM II, representing
        approximately 1.52% of their total outstanding common stock.  For the
        three and nine months ended September 30, 2007, we recognized $90,000 and
        $195,000, respectively, in dividend income from VRM II based on the number
        of
        shares we held on the dividend record dates.
 
 As
        of
        September 30, 2007, VRM II owned 533,675 of our common shares, representing
        approximately 7.77% of our total outstanding common stock.  For the
        three and nine months ended September 30, 2007, we declared approximately
        $74,000 and $200,000, respectively, in dividends payable to VRM II based
        on the
        number of shares VRM II held on the dividend record dates.
 
 During
        the nine months ended September 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.  No
        similar transactions occurred during the nine months ended September 30,
        2007.
 
 As
        of
        September 30, 2007, we owed related parties, under common management
        $20,000.  As of December 31, 2006, we had receivables from related
        parties, under common management $1,000.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            21
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 *Table
            of Contents*
  During
        the three and nine months ended September 30, 2007, we incurred $7,000 and
        $26,000, 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 nine months ended September 30,
        2006, we incurred $14,000 and $40,000, 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 September 30, 2007, we have received $33,000 in principal
        payments.  During the nine months ended September 30, 2007, the
        balance of $126,000 was fully reserved.
 
 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
        September 30, 2007, we have received $294,000 in principal
        payments.  Payments will be recognized as income when
        received.  The balance of $346,000 is fully reserved as of September
        30, 2007.
 
 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 collectability, we have provided a valuation allowance for
        the
        entire remaining balance of the promissory note.  Income will be
        recognized when payments are received.  On August 7, 2007, we and VRM
        II filed a complaint against the guarantor in the U.S. District Court of
        the
        District of Nevada, seeking to recover the amounts due pursuant to the
        promissory note.  The guarantor did not answer or otherwise respond to
        the lawsuit.  We and VRM II will seek a default judgment for all the
        amounts due.  If granted, we and VRM II will seek to enforce the
        Complaint against the guarantor; however, there can be no assurance that
        we and
        VRM II will recover the amounts.  As of September 30, 2007, we
        received $28,000 in principal payments.  The balance of $31,000 is
        fully reserved as of September 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 defaulted on the note
        and our manager pursued litigation.  During the nine months ended
        September 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. As of
        September 30, 2007, we received $17,000 in principal payments.  The
        balance of $43,000 is fully reserved as of September 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 September 30, 2007
 
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 -
            22
            -
 *Table
            of Contents*
  **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 for 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 Originations, 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 September 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.
 
 **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.  During August 2007, the note was paid in
        full.
 
 **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.
  See
            review report of Independent Registered Public Accounting Firm
 -
            23
            -
 *Table
            of Contents*
  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.
 
 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 void 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.
  See
            review report of Independent Registered Public Accounting Firm
 -
            24
            -
 *Table
            of Contents*
  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, we, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated
        announced that an arrangement had 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 to VRM II, Vestin Mortgage and
        us.  We, VRM II, Vestin Mortgage, the State of Hawaii 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.  We, VRM II, Vestin Mortgage and the State of Hawaii
        have received offers and are currently requesting, entertaining, and reviewing
        bids on the RightStar properties.  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.
 
 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 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 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 us 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.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            25
            -
 *Table
            of Contents*
  **NOTE
        P — SUBSEQUENT EVENT**
 
 On
        October 16, 2007, the Board of Directors declared a monthly cash dividend
        of
        $0.047 per share for the month of October 2007, that will be paid on November
        29, 2007, to the stockholders of record as of November 9, 2007.
 
 
 
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            26
            -
 *Table
            of Contents*
  
 REPORT
        OF
        INDEPENDENT REGISTEREDPUBLIC 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 September 30, 2007, the related consolidated
        statements of operations for the three-month and nine-month periods ended
        September 30, 2007 and 2006, the related consolidated statement of equity
        and
        other comprehensive income for the nine-month period ended September 30,
        2007
        and the related consolidated statements of cash flows for the nine-month
        periods
        ended September 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
 November
        6, 2007
 
 
  -
            27
            -
 *Table
            of Contents*
  **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 nine months ended September 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
        and our
        report on Form 10-K, Part II, Item 7 *Management’s Discussion and Analysis of
        Financial Conditions and Results of Operations* for the year ended December
        31, 2006.
 
 **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 Part II Item 1A *Risk Factors* of this
        Quarterly Report on Form 10-Q and in our other securities filings with the
        Securities and Exchange Commission (“SEC”).  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.”
 
  -
            28
            -
 *Table
            of Contents*
  Our
        operating results during the past several years have been adversely affected
        by
        allowances for non-performing loans.  At September 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, Pirates Lake, Ltd, Jeffrey's Court, LLC and V & M
        Homes at the Palms, Inc.  These loans are currently carried on our
        books at a value of approximately $11.8 million, net of allowance for loan
        losses of approximately $4.4 million for the RightStar loans, which does
        not
        include the allowance for performing 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 were due on October 1, 2007.  On October 2, 2007, the borrower
        was in default of the settlement and loan agreements and they filed for
        protection under Chapter 11 of the United States Bankruptcy Court for the
        Southern District of Texas.  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 $15.3 million
        or
        24% of our total assets as of September 30, 2007, as compared to approximately
        $11.8 million or 18% of our total assets as of December 31, 2006.  At
        September 30, 2007, non-performing assets consisted of approximately $3.5
        million of real estate held for sale not sold through seller financing and
        approximately $11.8 million of non-performing loans, net of allowance for
        loan
        losses.  In addition, during the nine months ended September 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 $1.3 million, of which our portion was
        $162,000.  Our manager also recognized expenses related to real estate
        held for sale for this property which totaled $2.7 million, of which our
        portion
        was approximately $336,000.
 
 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 September 30, 2007 and December 31, 2006 were 20 and
        19
        months, respectively.
 
 Uncertain
        economic conditions during the next year could have a material impact on
        the
        collectability of our loans.  The downturn in the real estate markets
        where we conduct business might increase defaults on our loans and might
        require
        us to record additional reserves.  The problems experienced by some
        lenders in the sub-prime market may have a material adverse affect on the
        commercial mortgage markets in which we operate.  We are aware that
        weakness in the credit markets 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 September 30, 2007, was 77.87% 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 77.87%,
        as
        of September 30, 2007, is primarily due to eight loans that were funded during
        the nine months ended September 30, 2007, totaling $4.1 million, with
        loan-to-value ratios ranging from 72.329% 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.  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.
 
 During
        the nine months ended September 30, 2007, our manager provided a specific
        reserve allowance, related to a land loan on property located in Glendale,
        AZ,
        of $1.6 million, of which our portion was $183,000.  This specific
        reserve allowance was based on an updated appraisal of the underlying collateral
        for this loan, obtained by our manager during October 2007.  As of
        September 30, 2007, the loan was performing as required.  Our manager
        will continue to evaluate our position in the loan.
  -
            29
            -
 *Table
            of Contents*
  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
        September 30, 2007, our loans were in the following states: Arizona, California,
        Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington.
 
 **Comparison
        of Operating Results for the three and nine months ended September 30, 2007
        to
        the three and nine months ended September 30, 2006.**
 
 **For
                  the Three Months**
                **Ended
                  September 30,**
              
              
              **For
                  the Nine Months**
                **Ended
                  September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Revenues
              
              $
              1,165,000
              
              
              $
              1,350,000
              
              
              $
              4,071,000
              
              
              $
              3,611,000Operating
                  expenses
              
              
              893,000
              
              
              
              390,000
              
              
              
              1,659,000
              
              
              
              4,109,000Income
                  (loss) from real estate held for sale
              
              
              (167,000
              )
              
              
              40,000
              
              
              
              (531,000
              )
              
              
              23,000Income
                  (loss) before provision for income taxes
              
              
              105,000
              
              
              
              1,000,000
              
              
              
              1,881,000
              
              
              
              (475,000
              )Provision
                  for income taxes
              
              
              --
              
              
              
              15,000
              
              
              
              --
              
              
              
              15,000Net
                  income (loss)
              
              $
              105,000
              
              
              $
              985,000
              
              
              $
              1,881,000
              
              
              $
              (490,000
              )Basic
                  and diluted earnings per weighted average common share
              
              $
              0.02
              
              
              $
              0.14
              
              
              
              0.27
              
              
              $
              0.22Net
                  loss allocated to members per weighted average membership
                  units
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (0.29
              )Dividends
                  declared per common share / cash distributions per membership
                  unit
              
              $
              0.14
              
              
              $
              0.08
              
              
              
              0.43
              
              
              $
              0.34Weighted
                  average common shares / membership units
              
              
              6,872,140
              
              
              
              6,868,907
              
              
              
              6,871,260
              
              
              
              6,887,342Weighted
                  average term of outstanding loans, including extensions
              
              20
                  months
              
              
              20
                  months
              
              
              20
                  months
              
              
              20
                  months
 
 *Comparison
        of Operating Results for the three months ended September 30, 2007 to the
        three
        months ended September30, 2006*.
 
 *Total
        Revenues*:  For the three months ended September 30, 2007, total
        revenues were approximately $1.2 million compared to approximately $1.4 million
        during the three months ended September 30, 2006, a decrease of approximately
        $185,000 or 13.7%.  Revenues were primarily affected by the following
        factors:
 
 ·
              Interest
                  income from investments in real estate loans decreased approximately
                  $248,000 during the three months ended September 30, 2007 compared
                  to the
                  same period in 2006, due to a decrease in investment in real estate
                  loans.  Our revenue is dependent upon the balance of our
                  investment in real estate loans and the interest earned on these
                  loans.  As of September 30, 2007, our investment in real estate
                  loans, including loans related to seller financed real estate held
                  for
                  sale, was approximately $54.2 million with a weighted average interest
                  rate of 12.08%.  As of September 30, 2006, our investment in
                  real estate loans, including loans related to seller financed real
                  estate
                  held for sale, was approximately $65.4 million with a weighted
                  average
                  interest rate of 10.5%.
  -
            30
            -
 *Table
            of Contents*
  
 ·
              During
                  the three months ended September 30, 2007, we earned approximately
                  $90,000
                  in dividend  income from VRM II based on the number of shares we
                  held during the period.  There was no comparable income during
                  the three months ended September 30,
                  2006.
 
 *Total
        Operating Expenses*:  For the three months ended September 30,
        2007, total operating expenses were $893,000 compared to approximately $390,000
        during the three months ended September 30, 2006, an increase of approximately
        $503,000 or 129.0%.  Expenses were primarily affected by the following
        factors:
 
 ·
              During
                  the three months ended September 30, 2007, we recognized a provision
                  for
                  loan loss of approximately $183,000 related to a land loan on property
                  located in Glendale, Arizona.  See “Specific Loan Allowance” in
                  Note D *Investment 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 provisions during the
                  three months ended September 30,
                  2006.
 
 ·
              During
                  the three months ended September 30, 2007, professional fees increased
                  approximately $222,000 primarily due to the accrual of approximately
                  $261,000 in legal fees relating to the legal actions that have
                  been filed
                  against us in connection with the REIT conversion.  See Note N –
                  *Legal Matters Involving The Company* 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 were no comparable accruals during the three months
                  ended September 30, 2006.
 
 *Total
        Income(Loss) from Real Estate Held for Sale*:  For the three
        months ended September 30, 2007, total loss from real estate held for sale
        was
        $167,000 compared to income of $40,000 during the same period in
        2006.  During the three months ended September 30, 2007, our manager
        evaluate the carrying value of the acquired property located in Cathedral
        City
        and related liabilities. As of September 30, 2007, our manager estimated
        the net
        realizable value of the asset totaled $28,355,000, of which our portion totaled
        $3,527,000, and estimated liabilities associated with this asset totaled
        $2,700,000, of which our portion totaled $336,000. Based on these estimates,
        our
        write downs on real estate held for sale for this property totaled $13,000
        for
        the three months ended September 30, 2007. We also recognized expenses related
        to real estate held for sale for this property which totaled $112,000 for
        the
        three months ended September 30, 2007.
 
 *Comparison
        of Operating Results for the nine months ended September 30, 2007 to the
        nine
        months ended September 30, 2006.*
 
 *Total
        Revenues*:  For the nine months ended September 30, 2007 total
        revenues increased by approximately $460,000 or 12.7% compared to the same
        period in 2006 due in significant part to the following factors:
 
 ·
              During
                  the nine months ended September 30, 2007, we recognized approximately
                  $195,000 in dividend income from investment in a related
                  party.  We had no comparable income during the same period in
                  2006.
 
 ·
              During
                  the nine months ended September 30, 2007, we earned approximately
                  $281,000
                  in other income from principal payments on notes receivable that
                  were
                  fully reserved compared to $21,000 earned during the same period
                  in
                  2006.
 
 *Total
        Operating Expenses*:  For the nine months ended September 30,
        2007, total operating expenses were $1,659,000 compared to $4,109,000 during
        the
        nine months ended September 30, 2006, a decrease of $2,450,000 or
        59.6%.  Expenses were primarily affected by the following
        factors:
 
 ·
              During
                  the nine months ended September 30, 2007, we recognized a provision
                  for
                  loan losses of approximately $183,000 related to a land loan on
                  property
                  located in Glendale, Arizona.  During the nine months ended
                  September 30, 2006, 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.
  -
            31
            -
 *Table
            of Contents*
  
 ·
              Professional
                  fees increased approximately $244,000 during the nine months ended
                  September 30, 2007, compared to the same period in 2006, primarily
                  due to
                  the accrual of approximately $261,000 in legal fees relating to
                  the legal
                  actions that have been filed against us in connection with the
                  REIT
                  conversion.  See Note N – *Legal Matters Involving The
                  Company* of the Notes to the Consolidated Financial Statements
                  included in Part I, Item 1*Consolidated Financial Statements*of
                  this Interim Report Form 10-Q.
 
 *Total
        Income(Loss) from Real Estate Held for Sale*:  For the nine months
        ended September 30, 2007, total loss from real estate held for sale was $531,000
        compared to income of $23,000 during the same period in 2006.  The
        total loss was primarily due to the following factors:
 
 ·
              During
                  the nine months ended September 30, 2007, our manager evaluated
                  the
                  carrying value of the acquired property located in Cathedral City
                  and
                  related liabilities. As of September 30, 2007, our manager estimated
                  the
                  net realizable value of the asset totaled $28,355,000, of which
                  our
                  portion totaled $3,527,000, and estimated liabilities associated
                  with this
                  asset totaled $2,700,000, of which our portion totaled $336,000.
                  Based on
                  these estimates, our write downs on real estate held for sale for
                  this
                  property totaled $162,000 for the nine months ended September 30,
                  2007. We
                  also recognized expenses related to real estate held for sale for
                  this
                  property which totaled $336,000 for the nine months ended September
                  30,
                  2007.
 
 ·
              During
                  the nine months ended September 30, 2006, we recorded a gain of
                  approximately $43,000 on the sale of 82 residential lots in Henderson,
                  Nevada.  There was no gain on sale of real estate held for sale
                  during the same period in 2007.
 
 *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.  Our taxable income may substantially exceed or be less than
        our net income as determined based on GAAP, because, differences in GAAP
        and
        taxable net income consist primarily of allowances for loan losses or doubtful
        account, write downs on real estate held for sale, capital gains and losses,
        and
        deferred income.  From January 1, 2007 through September 30, 2007, we
        declared dividends to our shareholders of approximately $2.9
        million.
 
 *Distributions
        to Members:*During the four months ended April 30, 2006, we distributed
        approximately $1.7 million to Fund I’s members.
 
 **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 nine months ended September 30, 2007, cash flows provided by operating
        activities approximated $2.9 million.  Investing activities consisted
        of cash provided by loan payoffs of approximately $12.2 million.  Cash
        used for new investments and purchases of real estate loans totaled
        approximately $5.8 million.  In addition, we used approximately $1.2
        million for the purchase of investment in marketable securities – related
        party.  Financing activities mainly consisted of dividends to
        stockholders, net of reinvestment, of approximately $3.6 million.
 
 At
        September 30, 2007, we had approximately $6.5 million in cash, $2.9 million
        in
        marketable securities – related party and approximately $64.0 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.
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            32
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            of Contents*
  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 October 30, 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
        $11.8 million and $3.5 million, respectively, as of September 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”).
 
 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 Originations, 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 September 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.
 
  -
            33
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            of Contents*
  **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 9% 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
        September 30, 2007, with a balance of approximately $54.2 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
        September 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, Pirates Lake, Ltd, Jeffrey's
        Court, LLC and V & M Homes at the Palms, Inc.  These loans are
        currently carried on our books at a value of approximately $11.8 million,
        net of
        allowance for loan losses of approximately $4.4 million for the RightStar
        loans,
        which does not include the allowance for performing 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 were due on October 1, 2007.  On October 2, 2007, the
        borrower was in default of the settlement and loan
        agreements.  Subsequently the borrower filed for protection under
        Chapter 11 of the United States Bankruptcy Court for the Southern District
        of
        Texas.  Our manager has instructed Bankruptcy counsel to seek relief
        from the automatic stay and to seek dismissal of the Pirate’s Lake Ltd. Chapter
        11 proceedings so that foreclosure proceedings may proceed.  A hearing
        is currently scheduled for November 7, 2007.  Our manager has
        evaluated this loan and concluded that the value of the underlying collateral
        is
        sufficient to protect us for loss of principal.  No specific allowance
        was deemed necessary.
 
 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 September 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.  In addition, during the nine months ended September 30,
        2007, our manager provided a specific reserve allowance, related to a land
        loan
        on property located in Glendale, AZ, of approximately $1.6 million, of which
        our
        portion was $183,000.  Our manager evaluated these 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.
 
 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:
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            34
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 *Table
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 ·
              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 nine months ended
        September 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
        September 30, 2007, we
        held one
        property with a total carrying value of approximately $3.5 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 nine
        months ended September 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 $1.3 million, of which
        our
        portion was approximately $162,000.  Our manager also recognized
        expenses related to real estate held for sale for this property, which totaled
        $2.7 million, of which our portion was approximately $336,000.
 
 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
        September 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.
 
  -
            35
            -
 *Table
            of Contents*
  **CONTRACTUAL
        OBLIGATIONS**
 
 As
        of
        September 30, 2007, we had no contractual obligations.  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 September 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
              
              $
              601,000Weighted
                  average interest rate assumption increased by 5.0% or 500 basis
                  points
              
              $
              3,005,000Weighted
                  average interest rate assumption decreased by 1.0% or 100 basis
                  points
              
              $
              (601,000
              )Weighted
                  average interest rate assumption decreased by 5.0% or 500 basis
                  points
              
              $
              (3,005,000
              )
 
 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.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at September 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
              
              $
              542,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              
              $
              2,708,000Allowance
                  for loan losses assumption decreased by 1.0% of loan
                  portfolio
              
              $
              (542,000
              )Allowance
                  for loan losses assumption decreased by 5.0% of loan
                  portfolio
              
              $
              (2,708,000
              )
 
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            36
            -
 *Table
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  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;
 
 ·
              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.
 
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            37
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 *Table
            of Contents*
  **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.**
              **QUANTITATIVE
                  AND QUALITATIVEDISCLOSURES 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 September 30, 2007, our aggregate investment in real
        estate loans was approximately $42.2 million, net of allowance, with a weighted
        average effective interest rate of 12.08%.  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 September 30, 2007, was 20 months.  All
        but two of the outstanding real estate loans at September 30, 2007, were
        fixed
        rate loans.  One of the two variable interest rate loans was
        non-performing as of September 30, 2007, see Note D – *Investments in Real
        Estate Loans* in Part I, Item 1 *Consolidated Financial Statements*
        of this Form 10-Q.  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 15 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.
 
 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 September 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 September 30,
        2007.
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            38
            -
 *Table
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 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity at September 30, 2007****Interest
                  Earning Assets**
              
              **2007**
              
              
              **2008**
              
              
              **2009**
              
              
              **2010**
              
              
              **Thereafter**
              
              
              **Total**Investments
                  in real estate loans
              
              $
              39,252,000
              
              
              $
              14,899,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              54,151,000Weighted
                  average interest rates
              
              
              12.07%
              
              
              
              12.10%
              
              
              
              --%
              
              
              
              --%
              
              
              
              --%
              
              
              
              12.08%
 
 At
        September 30, 2007, we also had approximately $9.4 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.**
                  **CONTROLS
                        ANDPROCEDURES**
 **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 our management, including the CEO
        and
        CFO, as of September 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 not identified any changes in our internal controls over
        financial reporting during the Quarter ended September 30, 2007.
 
 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.**
                  **CONTROLS
                        ANDPROCEDURES**
 Not
        applicable
 
 **PART
        II – OTHER INFORMATION**
 
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            39
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 *Table
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  **ITEM
                            1.**
                      **LEGAL
                            PROCEEDINGS**
  Please
        refer to Note M *Legal Matters Involving the Manager* and Note N
*Legal Matters Involving the Company* in Part I Item 1
*Consolidate**Financial Statements* of this Form 10-Q for
        information regarding our legal proceedings, which are incorporated herein
        by
        reference.
 **ITEM
                              1A.**
                        **RISK
                              FACTORS**
 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 September 30, 2007 was 77.87% 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
        September 30, 2007, we had in our portfolio approximately $11.8 million in
        delinquent loans, net of allowance for loan losses, and approximately $3.5
        million of real estate held for sale not sold through seller financing for
        a
        total of approximately $15.3 million in non-performing assets, which represented
        approximately 25% of our stockholders’ equity.  As of September 30,
        2007, we also had approximately $7.9 million of seller financed real estate
        held
        for sale and had received approximately $1.7 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 September 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 September 30, 2007
        and December 31, 2006, we had total indebtedness of $0 and $310,000,
        respectively.
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  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 Originations, 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.  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.
 
 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.
 
 **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.
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  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 nine months ended September
        30, 2007, loan originations accounted for all loans funded, except for eight
        loans that were refinanced during that period.  All eight of these
        loans had interest rates equal to or higher than their original
        loan.  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
        September 30, 2007, none of our loans had a prepayment penalty and 15 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:
 
 ·
              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 or our manager, 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
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 ·
              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.  During the nine months ended September
        30, 2007, we accrued legal expenses of approximately $261,000 related to
        such
        actions.  Moreover, any adverse outcome in such actions could result
        in our having to pay substantial damages, which 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.
 
 **Our
        manager’s lack of experience with certain real estate markets could impact its
        ability to make prudent investments on our behalf.**
 
 As
        of
        September 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.
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            44
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  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, 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.
 
 **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 or our manager may be 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.
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            45
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  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 $207,000 for the nine months
        ended
        September 30, 2007.  In addition, Vestin Mortgage and Vestin
        Originations received a total of approximately $1.0 million and $10.2 million,
        respectively in fees directly from borrowers for the nine months ended September
        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.  Our assets represented approximately 14% of the assets
        managed by Vestin Mortgage as of September 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, 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 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.
 
 **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.
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  **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
        September 30, 2007, we held one property with a total carrying value of
        approximately $3.5 million recorded as investments in real estate held for
        sale.  As of September 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
        17.9%
        of our assets as of September 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.
 
 **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.
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  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
        September 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.
 
 **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.
 
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  **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 6 *Exhibits and Financial Statement
        Schedules* of this Report Form 10-Q) 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.
 
 ·
              *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:
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 ·
              “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.
 
 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.**
              **UNREGISTERED
                  SALES OF EQUITYAND USE OF
                  PROCEEDS**
 
 None.
 
 **ITEM
                  3.**
              **DEFAULTS
                  UPON SENIOR SECURITIES**
 
 None.
 
 **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITYHOLDERS**
 
 None.
 
 **ITEM
                  5.**
              **OTHER
                  INFORMATION**
 
 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:
              November
                  6, 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
              
              November
                  6, 2007Michael
                  V. Shustek
              
              (Principal
                  Executive Officer)*/s/
                  Rocio Revollo*
              
              Chief
                  Financial Officer
              
              November
                  6, 2007Rocio
                  Revollo
              
              (Principal
                  Financial and Accounting Officer)*/s/
                  John E. Dawson*
              
              Director
              
              November
                  6, 2007John
                  E. Dawson*/s/
                  Robert J. Aalberts*
              
              Director
              
              November
                  6, 2007Robert
                  J. Aalberts*/s/
                  Fredrick J. Zaffarese Leavitt*
              
              Director
              
              November
                  6, 2007Fredrick
                  J. Zaffarese Leavitt*/s/
                  Roland M. Sansone*
              
              Director
              
              November
                  6, 2007Roland
                  M. Sansone
 
 
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