REDWOOD MORTGAGE INVESTORS VII
                       (a California Limited Partnership)
                               Index to Form 10-K

                                December 31, 2001

                                     Part I

                                                                        Page No.
                                                                        -------
Item 1 - Business                                                           3
Item 2 - Properties                                                         4
Item 3 - Legal Proceedings                                                  6
Item 4 - Submission of Matters to a Vote of Security Holders (Partners)     6

                                     Part II

Item 5 - Market for the Registrant's "Limited Partnership Units" and
              Related Unitholder Matters                                    6
Item 6 - Selected Financial Data                                            6
Item 7 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                          8
Item 8 - Financial Statements and Supplementary Data                       13
Item 9 - Changes in and Disagreements with Accountants on
         Accounting  and Financial Disclosure                              32

                                    Part III

Item 10 - Directors and Executive Officers of the Registrant                33
Item 11 - Executive Compensation                                            33
Item 12 - Security Ownership of Certain Beneficial Owners and Management    34
Item 13 - Certain Relationships and Related Transactions                    34

                                     Part IV

Item 14 - Exhibits, Financial Statements and Schedules,
          and Reports on Form 8-K.                                          34

Signatures                                                                  35


<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K
                  Annual Report Pursuant to Section 13 or 15 (d) of
                       the Securities Exchange Act of 1934

       For the year ended December 31, 2001 Commission file number 33-30427
--------------------------------------------------------------------------------

                         REDWOOD MORTGAGE INVESTORS VII
              (Exact name of registrant as specified in its charter)

        California                                        94-3094928
--------------------------------------------------------------------------------
  (State or other jurisdiction of               (I.R.S. Employer Identification)
    incorporation or organization)

650 El Camino Real Suite G, Redwood City, CA                        94063
--------------------------------------------------------------------------------
 (address of principal executive offices)                        (zip code)

Registrant's telephone number including area code               (650) 365-5341
--------------------------------------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

   Title of each class                 Name of each exchange on which registered
--------------------------------------------------------------------------------
       None                                                 None
--------------------------------------------------------------------------------

Securities registered pursuant to
             Section 12(g) of the Act:                 Limited Partnership Units

     Indicate by check mark whether the  registrant (1) has filed all reports to
be filed by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934 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        XXXX                                                NO
------------------                                             -----------------

     Through  December  31, 2001,  the limited  partnership  units  purchased by
non-affiliates  was 119,983.59 units computed at $100.00 a unit for $11,998,359.
The offering was closed on September 30, 1992.

Documents incorporated by reference:

     Portions of the Prospectus  dated October 20, 1989, and Supplement #5 dated
February 14, 1992,  filed on form S-11, are  incorporated  in Parts II, III, and
IV.  Exhibits filed as part of Form S-11  Registration  Statement  #33-30427 are
incorporated in part IV.

<PAGE>

                                     Part I

Item 1 - Business

     Redwood  Mortgage  Investors  VII, a California  limited  partnership  (the
"Partnership"),  was  organized  in 1989 of which  Michael R.  Burwell and Gymno
Corporation, a California corporation,  are the general partners. The address of
the partnership and the general partners is 650 El Camino Real, Suite G, Redwood
City,  California 94063. The partnership is organized to engage in business as a
mortgage  lender,  for the primary  purpose of making loans  secured by deeds of
trust on  California  real  estate.  Loans are  arranged and serviced by Redwood
Mortgage  Corp.,  an  affiliate  of  the  general  partners.  The  partnership's
objectives  are to make  investments,  as  referred to above,  which  will:  (i)
provide the maximum  possible cash returns  which limited  partners may elect to
(a)  receive as monthly,  quarterly  or annual  cash  distributions  or (b) have
credited to their capital  accounts and applied to partnership  activities;  and
(ii) preserve and protect the partnership's  capital. The partnership's  general
business  is  more  fully  described  under  the  section  entitled  "Investment
Objectives and Criteria" pages 26-31 of the Prospectus  which is incorporated by
reference.

     Originally,  60,000 Units were offered on a "best  efforts"  basis  through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus,  the general partners  increased
the number of units for sale from 60,000 to 120,000 and elected to continue  the
offering until  September 30, 1992.  The offering  closed on September 30, 1992,
and the limited partners  contributed capital totaled $11,998,359 of an approved
$12,000,000  issue,  in units of $100 each. At that date all the  applicants had
been admitted into the partnership with none left in the applicant  status.  The
final SR report (Report of Sales of Securities  and use of proceeds  therefrom),
was filed on September 21, 1992.

     The partnership  began selling units in October 1989 and began investing in
mortgages in December 1989. At December 31, 2001, the  partnership had a balance
in its loans portfolio totaling  $10,091,195 with interest rates thereon ranging
from 6.50% to 18.00%.

     Currently, loans secured by First Trust Deeds comprise 49.96% of the amount
of funds in the loan  portfolio  followed  by Second  Trust  Deeds of 47.60% and
Third  Trust  Deeds of 2.44%.  Owner-occupied  homes,  combined  with  non-owner
occupied homes total 20.39% of the loans. Commercial loans origination decreased
from last year,  now comprising  64.12% of the  portfolio,  a decrease of 1.07%.
Loans to  apartments  totaled  15.49%.  Of the total  loans,  63.51% are in five
counties of the Bay Area. The County of Stanislaus makes up 27.64% of the loans.
Stanislaus  County is an adjacent county to the San Francisco Bay Area,  located
approximately 65 miles from San Francisco. The balance of loans are primarily in
Northern  California.  Loan size  decreased the past year,  and is now averaging
$280,311 per loan, a decrease of $56,381.  Some of the larger loans  invested in
by the partnership are fractionalized between other affiliated partnerships with
objectives  similar to those of the partnership to further reduce risk.  Average
equity per loan transaction, which is our loan plus any senior loans, divided by
the property's  appraised  value,  subtracted from 100%,  stood at 39.34%. A 40%
equity average on loan  origination is generally  considered very  conservative.
Generally,   the  more  equity,   the  more  protection  for  the  lender.   The
partnership's  loan  portfolio  is in good  condition  with  two  properties  in
foreclosure as of December 2001.

<PAGE>

Item 2 - Properties

A summary of the partnership's loan portfolio as of December 31, 2001 is set
forth below.

Loans as a Percentage of Total Loans

First Trust Deeds                                                 $5,042,062
Appraised Value of Properties                                      9,387,195
                                                            -----------------
  Total Investment as a % of Appraisal                                53.71%
                                                            -----------------

First Trust Deeds                                                 $5,042,062
Second Trust Deed Loans                                            4,803,146
Third Trust Deed Loans                                               245,987
                                                            -----------------
                                                                  10,091,195
                                                            -----------------
Priority positions
    First Trust Deeds due other Lenders                            7,840,390
    Second Trust Deeds due other Lenders                           1,478,096
                                                            -----------------

Total Debt                                                       $19,409,681
                                                            =================

  Appraised Property Value                                       $31,997,080
  Total Investments as a % of Appraisal                               60.66%

Number of Loans Outstanding                                               36

Average Investment                                                   280,311
Average Investment as a % of Loans Outstanding                         2.78%
Largest Investment Outstanding                                     1,000,000
Largest Investment as a % of Loans Outstanding                         9.91%


Loans as a Percentage of Total Loans                                  Percent
-------------------------------------------                      -----------
First Trust Deeds                                                      49.96%
Second Trust Deeds                                                     47.60%
Third Trust Deeds                                                       2.44%
                                                                     -----------
Total                                                                 100.00%

Loans by Type of Property                            Amount             Percent
-----------------------------------        ---------------------     -----------
Owner Occupied Homes                              $622,435.01              6.17%
Non-Owner Occupied Homes                         1,435,443.78             14.22%
Apartments                                       1,563,213.50             15.49%
Commercial                                       6,470,102.70             64.12%
                                           ---------------------     -----------

Total                                          $10,091,194.99           100.00 %
                                           =====================     ===========


<PAGE>

The following is a distribution of loans outstanding as of December 31, 2001 by
Counties.

                                  Total Mortgage
County                              Investments               Percent

San Francisco                           $3,221,043             31.92%
Stanislaus                               2,789,206             27.64%
Santa Clara                              1,336,162             13.24%
Contra Costa                               965,931              9.57%
Alameda                                    649,951              6.44%
Santa Cruz                                 375,000              3.72%
San Mateo                                  236,157              2.34%
Sacramento                                 231,716              2.30%
Placer                                     184,609              1.83%
Shasta                                      78,557              0.78%
Sonoma                                      22,863              0.22%
                                 ------------------       ------------
Total                                  $10,091,195            100.00%
                                 ==================       ============


Statement of Condition of Loans
         Number of Loans in Foreclosure  2

Scheduled maturity dates of loans as of December 31, 2001 are as follows:

                         Year Ending
                         December 31,                  Amount
                      -------------------        --------------------
                             2002                         $8,432,811
                             2003                            556,862
                             2004                            638,704
                             2005                             40,125
                             2006                            184,380
                          Thereafter                         238,313
                                                 --------------------
                            Total                        $10,091,195
                                                 ====================

     The  scheduled   maturities  for  2002  include  thirteen  loans  totalling
approximately  $4,945,909  which were past  maturity at December 31, 2001.  This
represents 49.01% of the loan portfolio. Six of these loans totalling $1,391,163
were paid off in March 2002.  Interest  payments on $656,098 of these loans were
categorized  as  delinquent  over  90  days,   which  represents  6.50%  of  the
partnership's  loan  portfolio.  Several  other  borrowers  were in  process  of
refinancing their loans through other institutions as this was an opportune time
for them to do so and take advantage of the lower  interest rate.  Additionally,
the partnership  allows borrowers to occasionally  continue to make the payments
on debt past maturity for periods of time. The  partnership,  in most instances,
receives the benefit of a higher interest rate than would otherwise be available
in the currently existing loan marketplace.

     Overall,  the loan portfolio had eight loans with principal  outstanding of
$1,318,696  where  interest  payments  were  overdue  in excess of 90 days.  The
principal  outstanding  represents 13.07% of the  partnership's  portfolio as of
December 31, 2001.

     In  addition,  five loans with  principals  outstanding  of  $889,439  were
considered  impaired at December 31,  2001.  That is,  interest  accruals are no
longer recorded thereon. This represents 8.81% of the total loan portfolio.

<PAGE>

Item 3 - Legal Proceedings

     In the normal  course of business the  partnership  may become  involved in
various types of legal  proceedings  such as  assignments  of rents,  bankruptcy
proceedings,   appointments   of   receivers,   unlawful   detainers,   judicial
foreclosures, etc., to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory  notes or to  protect/recoup  its investment from
the real property  secured by the deeds. As of the date hereof,  the partnership
is not  involved  in any  legal  proceedings  other  than  those  that  would be
considered part of the normal course of business. Item 4 - Submission of Matters
to a Vote of Security Holders (Partners)

No matters have been submitted to a vote of the partnership.

                                     Part II

Item 5 -  Market for  the  Registrant's "Limited Partnership Units"  and Related
          Unitholder  Matters

     120,000  units  at $100  each  (minimum  20  units)  were  offered  through
broker-dealer  member firms of the National Association of Securities Dealers on
a "best  efforts"  basis (as  indicated  in Part I item 1).  Investors  have the
option of  withdrawing  earnings  on a monthly,  quarterly,  or annual  basis or
reinvesting and compounding the earnings. limited partners may withdraw from the
partnership in accordance with the terms of the partnership Agreement subject to
possible early  withdrawal  penalties.  There is no  established  public trading
market.

     A  description  of  the  partnership  units,   transfer   restrictions  and
withdrawal  provisions  is more  fully  described  under  the  section  entitled
"Description of Units" and "Summary of Limited Partnership Agreement",  pages 47
to 50 of the Prospectus, a part of the referenced Registration Statement,  which
is incorporated by reference.

Item 6 - Selected Financial Data

     Redwood Mortgage Investors VII began operations in December 1989. Financial
results for years 1984 to 1989 for prior  public  partnerships  sponsored by the
general  partners and their  affiliates,  are  incorporated  by reference to the
Prospectus (S-11)..

<PAGE>

     Financial  condition and results of operation for the  partnership for five
years to December 31, 2001 were:

                                 Balance Sheets
                                     Assets

<TABLE>
                                                                            December 31,
                                       ------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>               <C>                <C>                <C>
                                           2001                2000              1999               1998               1997
                                       --------------     ---------------    --------------     --------------    ---------------

Cash                                        $389,844            $269,000          $388,770           $461,544           $520,837

Loans
   Loans secured by deeds of trust        10,091,195          12,794,297        11,011,660         13,209,186         13,449,741
   Loans, unsecured                          173,731             188,421           163,085            242,493            252,422

Interest and other receivables
   Accrued interest and other fees           660,551             363,321           357,177            442,350            427,952
   Advances on loans                          50,665              29,825            31,669             39,733             33,154
   Less allowance for losses               (887,578)           (850,548)         (828,563)          (787,042)          (424,738)

Real estate owned ("REO"), net               872,133             816,094           307,931            397,396            687,139
Real estate owned in process                       -                   -           525,510                  -                  -
Partnership interest                               -                   -                 -                  -            346,017
                                       --------------     ---------------    --------------     --------------    ---------------
                                         $11,350,541         $13,610,410       $11,957,239        $14,005,660        $15,292,524
                                       ==============     ===============    ==============     ==============    ===============


                        Liabilities and Partners Capital


                                                                             December 31
                                       -----------------------------------------------------------------------------------------

                                           2001               2000              1999               1998               1997
                                       --------------                       --------------     --------------    ---------------
Liabilities
  Note payable - bank                     $1,907,000         $3,500,000          $800,000         $1,912,663         $2,341,816
  Accounts payable and
     accrued expenses                         11,295              4,102            32,234             12,547              1,845
  Deferred interest                                -                  -           115,709            131,743                  -
  Discount of loans                                -                  -                 -                  -             69,316
                                       --------------    ---------------    --------------     --------------    ---------------
                                           1,918,295          3,504,102           947,943          2,056,953          2,412,977

Partners' capital
  General partners                            11,978             11,978            11,978             11,978             11,978
  Limited partners subject to
    redemption                             9,420,268         10,094,330        10,997,318         11,936,729         12,867,569
                                       --------------    ---------------    --------------     --------------    ---------------
Total partners capital                     9,432,246         10,106,308        11,009,296         11,948,707         12,879,547
                                       --------------    ---------------    --------------     --------------    ---------------

                                         $11,350,541        $13,610,410       $11,957,239        $14,005,660        $15,292,524
                                       ==============    ===============    ==============     ==============    ===============

</TABLE>
<PAGE>

                               Statement of Income

<TABLE>
                                                                         December 31,
                                        ------------- -- --------------- --------------------- -------------- -- ----------------
<S>                                         <C>               <C>               <C>                <C>                <C>
                                            2001              2000              1999               1998               1997
                                        -------------    ---------------    --------------     --------------    ----------------

Gross revenue                             $1,168,451         $1,437,964        $1,663,245         $1,657,728         $ 1,623,863
Expenses                                     347,254            537,818           753,664            811,157             796,984
                                        -------------    ---------------    --------------     --------------    ----------------

Net Income                                 $ 821,197          $ 900,146         $ 909,581          $ 846,571          $  826,879
                                        =============    ===============    ==============     ==============    ================

Net income to general
  partners (1%)                                8,212              9,001             9,096              8,466               8,269
Net income to limited
  partners (99%)                             812,985            891,145           900,485            838,105             818,610
                                        -------------    ---------------    --------------     --------------    ----------------
                                           $ 821,197          $ 900,146         $ 909,581          $ 846,571          $  826,879
                                        =============    ===============    ==============     ==============    ================

Net income per $1,000 invested by
limited partners for entire period
:
   - where income is compounded
and retained                                     $85                $85               $79                $67                 $61
                                        =============    ===============    ==============     ==============    ================

    - where partner receives
        income in monthly
        Distributions                            $82                $82               $76                $65                 $59
                                        =============    ===============    ==============     ==============    ================
</TABLE>

     The annualized  yield for 1999 was 7.86%, for 2000 the annualized yield was
8.52%,  and for 2001 the annualized  yield was 8.50%.  Average  annualized yield
from inception through December 31, 2001, was 7.85%.

Item 7 - Management  Discussion and Analysis of Financial Condition  and Results
         of Operations

Forward Looking Statements

     The  foregoing  analysis  of  year  2001  issues  includes  forward-looking
statements  and  predictions  about  possible  or  future  events,   results  of
operations,  and  financial  condition.  As such,  this analysis may prove to be
inaccurate  because of  assumptions  made by the general  partners or the actual
development  of  future  events.  No  assurance  can be given  that any of these
statements or predictions  will ultimately  prove to be correct or substantially
correct.

        Management Discussion and Analysis of Financial Condition and
                           Results of Operations

     On September 30, 1992, the partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each.  As of that date,  the  offering  was  formally  closed.  At
December 31, 2001, Partners' Capital totaled $9,432,246.

     At  December  31,  2001,  the   partnership   loans   outstanding   totaled
$10,091,195.  This represents a decline of $2,703,102 from the December 31, 2000
loans balance.  This reduction in loans  outstanding as of December 31, 2001 was
chiefly due to loan repayments and loan pay-offs being used to fund  withdrawals
to the limited partners of $1,554,751  during twelve months through December 31,
2001 and  partial  reduction  in line of credit  balance  by  $1,593,000.  Loans
decreased  from  $13,449,741  from 1997 to  $10,091,195  in 2001,  a decrease of
$3,358,546  chiefly due to increase in amounts of real estate owned by $184,994,
payments to withdrawing  limited  partners  totaling  $8731,235,  a reduction of
outstanding  Note  Payable  - Bank of  $434,816  and  investment  of  cash.  The
partnership  began  funding  loans on December 27, 1989,  and as of December 31,
2001, had credited the partners'  accounts with income at an average  annualized
(compounded) yield of 7.85%.

     Between the fall of 1999 to January 2001,  mortgage interest rates had been
rising due primarily to economic  forces and by the Federal  Reserve raising its
core interest rates.  However,  since January 2001, the Federal Reserve has been
dramatically  cutting  its core  interest  rates with  eleven  successive  cuts,
ranging from .25% to .50%. The latest cut being December 11, 2001, which reduced
the Federal Funds Rate to 1.75%.  In late January 2002, the Federal  Reserve met
and did not  change  interest  rates  signaling  that it may take a wait and see
course before making any further  interest rate changes.  The effect of the cuts
has greatly  reduced  short-term  interest  rates and to a lesser extent reduced
long-term interest rates. New loans will be originated at then existing interest
rates.  In the future,  interest  rates  likely  will change from their  current
levels. The general partners cannot at this time predict at what levels interest
rates will be in the future. The general partners anticipate that new loans will
be placed at rates  approximately  1% lower than similar  loans during the first
half of 2001. The lowering of interest rates has encouraged those borrowers that
hold  higher  interest  rate  loans  than  those  currently  available  to  seek
refinancing  of their  existing  obligations  to take  advantage  of these lower
rates.  The  partnership  may face  prepayments  in the existing  portfolio from
borrowers taking advantage of these lower rates. However,  demand for loans from
qualified  borrowers  continues to be strong and as prepayments occur, we expect
to replace  these loans with loans at somewhat  lower  interest  rates.  At this
time,  we believe that the average  loan  portfolio  interest  rate will decline
approximately  .25% to .50% over next year.  Nevertheless,  based upon the rates
expected in connection with the existing loans,  and anticipated  interest rates
to be charged by the  partnership  and the  general  partners'  experience,  the
general  partners  anticipate that the annualized yield will range between eight
and nine percent (8.00% - 9.00%) in 2002.

     The  partnership has a line of credit with a commercial bank secured by its
loans to a limit of $3,500,000,  at a variable  interest rate set at one-quarter
percent above the prime rate. As of December 31, 2001,  the prime rate was 4.75%
and the line of credit rate was 5.0%.  As of December  31,  2001,  December  31,
2000,  and December  31, 1999,  the balances  were  $1,907,000,  $3,500,000  and
$800,000,  respectively. This line of credit expires on May 01, 2003. This added
source of funds  helped in  maximizing  the  partnership  yield by allowing  the
partnership to minimize the amount of funds in lower yield  investment  accounts
when appropriate loans are not currently available. Since most of the loans made
by the partnership  bear interest at a rate in excess of the rate payable to the
bank which extended the line of credit, once the required principal and interest
payments on the line of credit are paid to the bank,  the loans funded using the
line of credit generate  revenue for the  partnership.  As of December 31, 2001,
the partnership is current with its interest payments on the line of credit. For
the years ended  December 31, 1999,  2000 and 2001,  interest paid was $182,350,
$257,640 and $128,224, respectively. The somewhat lower interest paid in 2001 is
reflective of both a lower than average credit line usage and the lower existing
interest rate.

     The  partnership's  income and  expenses,  accruals and  delinquencies  are
within the normal range of the general partners' expectations,  based upon their
experience in managing similar  partnerships  over the last  twenty-four  years.
Loan servicing fees in 1999 were  $127,440,  in 2000 were $110,713,  and in 2001
were  $94,396.  These loan  servicing  fees were  declining  as the  outstanding
mortgage loan portfolio balances  declined.  Asset Management Fees were $44,524,
$38,400,  and $37,233  for the years ended  December  31,  1999,  2000 and 2001,
respectively.   The  Asset  Management  Fee  is  declining  as  the  partnership
distributes partners' capital.

     All other expenses  fluctuated in a very close range except for Interest on
Note  Payable - bank and  Provision  for  Doubtful  Accounts  and losses on Real
Estate Acquired Through  Foreclosure each discussed elsewhere in this Management
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations.
Borrower  foreclosures,  as set forth under Results of Operations,  are a normal
aspect of partnership  operations and the general partners  anticipate that they
will not have a material  effect on  liquidity.  As of December 31, 2001,  there
were two properties in foreclosure,  representing 2.1% of the partnership's loan
portfolio.  Cash is constantly  being  generated  from interest  earnings,  late
charges,  pre-payment  penalties,  amortization  of principal and loan pay-offs.
Currently,  cash flow exceeds partnership expenses,  earnings and capital payout
requirements.  Excess cash flow will be invested in new loan opportunities, when
available,  and will be used to reduce the  partnership  credit line or in other
partnership business.

     The general  partners  regularly  review the loan portfolio,  examining the
status of delinquencies,  the underlying  collateral  securing these properties,
the REO expenses and sales activities,  borrowers payment records,  etc. Data on
the local real estate  market and on the national and local economy are studied.
Based upon this  information  and other data,  loss  reserves  are  increased or
decreased.  Because of the number of variables  involved,  the  magnitude of the
possible  swings and the general  partners  inability  to control  many of these
factors, actual results may and do sometimes differ significantly from estimates
made  by the  general  partners.  Management  provided  $329,057,  $65,664,  and
$37,371,  as provisions  for doubtful  accounts for the years ended December 31,
1999,  2000,  and 2001,  respectively.  The provision for doubtful  accounts was
decreased by $93,997 to $329,057 in 1999,  by $263,393 to $65,664 in 2000 and by
$28,293  to  $37,371 in 2001.  These  decreases  reflect  reduced  expected  REO
anticipated   losses  and  improved   collections   of  secured  and   unsecured
receivables.  If conditions  change,  the  partnership  may again  increase it's
provisions for doubtful accounts.

     The  partnership  makes  loans  primarily  in  Northern  California.  As of
December 31, 2001,  approximately 63.51%,  ($6,409,244) of the loans held by the
partnership  were in the five San Francisco Bay Area Counties.  The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area.  Like the rest of the nation,  the San Francisco Bay
Area has also felt the recession and  accompanying  slow down in economic growth
and increasing  unemployment.  The technology  companies of Silicon Valley,  the
airline  industry,  the tourism  industry and other  industries  are feeling the
effects of the overall United States  recession,  which includes lower earnings,
losses and layoffs.

     The Northern California residential real estate market and particularly the
San Francisco Bay Area residential real estate market  experienced  increases in
values of over 10% in 1999 and 2000, respectively. In 2001, the residential real
estate marketplace  slowed,  this has resulted in longer listing and transaction
times and lower market prices in some segments.  The  California  Association of
Realtors  reported in  November  2001 that the  statewide  median home price had
reached  its  highest  point ever with a median  home price of $278,740 up 11.2%
from a year  earlier and 2.4% higher than in October of 2001.  It also  reported
that overall volume of home sales slipped 12.4% from the year earlier.  In spite
of  these  California  wide  higher  home  prices,  the San  Francisco  Bay Area
experienced median sales prices through October of 2001 of between minus 4.2% to
a  positive  16.7% for  resale  homes.  In spite of these  numbers  the  general
partners  believe that lower-end and mid-priced homes have continued to increase
in value,  although at a reduced rate from 2000, while high end homes have begun
to decrease in value.  This  situation  is showing  some signs of a  turnaround.
Inventories of homes available for sale have decreased  sharply from their highs
in the spring of 2001. For example, the supply of "for sale" homes, condominiums
and  townhomes  in Santa Clara County  peaked the week of May 25, 2001,  at more
than 5,700, according to Coldwell Banker Northern California  statistics.  As of
January  18,  2002,  fewer than 2,500  homes were "for sale"  countywide.  Other
counties in the San Francisco Bay Area offer similar  statistics.  The number of
single-family  home sales in Santa Clara County was 962 for December  2001 which
is the greatest  number of homes sold since records  became public in 1984.  The
reduction in  inventories  and the strong  sales may  indicate  that the buyer's
market that  prevailed  throughout  most of 2001 may be coming to an end and may
indicate that a recovery is underway. A stabilization of residential home prices
or a recovery  in home prices is good for the  partnership  since we depend more
heavily  than  banks and other  similar  credit  type  lenders on the value of a
property.

     Commercial  property  vacancy  rates have  continued  to climb with the San
Francisco  Bay Area office  market  surpassing  15% as a whole  according  to BT
Commercial  Real Estate and Grubb and Ellis Co. As a result,  rents have dropped
about 40% from last year's highs, giving up nearly all the gains made during the
past three years.  Though  vacancy rates have leaped from 2 percent in the third
quarter of 2000 to 15% at the end of 2001, landlords are bearing only about half
the pain,  since  nearly half the office  space being  offered is for  sublease,
meaning  landlords  generally  are  still  collecting  money  from the  original
tenants.  To the  partnership  the higher overall vacancy rates may mean that we
experience  greater  delinquencies in its commercial portion of the portfolio if
landlord's  existing leases expire or space becomes  available  through business
failures.

     As of December 31, 2001, the partnership had an average loan to value ratio
computed as of the date the loan was made of 60.66%.  This  percentage  does not
account for any  increases or  decreases  in property  values since the date the
loan  was  made,  nor  does it  include  any  reductions  in  principal  through
amortization  of payments after the loan was made.  This low loan to value ratio
will assist the partnership in weathering loan  delinquencies  and  foreclosures
should they eventuate.


     The  partnership's  interest  in land  located  in East Palo  Alto,  CA was
acquired  through  foreclosure.  The  investment  was  previously  classified as
Investment in partnership in the Financial  Statements and has been reclassified
into Real Estate Owned. The partnership's basis of $61,837,  $38,238, and $9,039
for the years ended  December 31, 2001,  2000, and 1999  respectively,  has been
invested  with that of two other  partnerships.  In order to pursue  development
options,  rezoning of the property's existing residential zoning  classification
will be required.  The partnership is continuing to explore  remediation options
available to mitigate the pesticide  contamination,  which affects the property.
This pesticide contamination appears to be the result of agricultural operations
by  prior  owners.  The  general  partners  do not  believe  at this  time  that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the partnership.

     The efforts of the general  partners  to  subdivide  the land have met with
success.  The arsenic contaminated portion of the property has been delivered to
the party responsible for the arsenic contamination.  The remaining land will be
made available for development or sale by the partnership.  The general partners
believe this to be a good result for the partnership.

     At the time of subscription to the  partnership,  limited  partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended December 31, 1999, 2000, and 2001, the partnership  made  distributions of
earnings to limited partners after allocation of syndication  costs of $490,841,
$454,386,  and  $374,689,  respectively.  Distribution  of  Earnings  to limited
partners after allocation of syndication  costs for the years ended December 31,
1999, 2000 and 2001 to limited  partners' capital accounts and not withdrawn was
$409,644, $436,759, and $438,296, respectively. As of December 31 1999, 2000 and
2001,  limited partners electing to withdraw  earnings  represented 54%, 49% and
42% of the limited partners' capital.

     The partnership  also allows the limited partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
partnership  agreement).  For the years ended December 31, 1999, 2000, and 2001,
$231,025,  $179,343,  and $98,857 were liquidated subject to the 10% penalty for
early withdrawal.  These  withdrawals are within the normally  anticipated range
that the general  partners  would expect in their  experience  in this and other
partnerships.  The general  partners  expect that a small  percentage of limited
partners will elect to liquidate their capital accounts over one year with a 10%
early withdrawal penalty. In originally conceiving the partnership,  the general
partners wanted to provide  limited  partners  needing their capital  returned a
degree of liquidity.  Generally,  limited partners electing to withdraw over one
year need to liquidate their investment to raise cash. The trend the partnership
is  experiencing  in  withdrawals  by  limited  partners  electing  a  one  year
liquidation  program represents a small percentage of limited partner capital as
of  December  31,  1999,  2000,  and 2001,  respectively  and is expected by the
general partners to commonly occur at these levels.

     Additionally,  for the years  ended  December  31,  1999,  2000,  and 2001,
$1,205,917, $1,250,291, and $1,089,113, respectively, were liquidated by limited
partners who have elected a  liquidation  program over a period of five years or
longer.  This ability to withdraw  after five years by limited  partners has the
effect of providing  limited partner  liquidity.  The general  partners expect a
portion of the limited  partners to take advantage of this  provision.  This has
the  anticipated   effect  of  the  partnership   growing,   primarily   through
reinvestment of earnings in years one through five. The general  partners expect
to see increasing  numbers of limited partner  withdrawals in years five through
eleven,  after  which time the bulk of those  limited  partners  who have sought
withdrawal  have been  liquidated.  After  year  eleven,  liquidation  generally
subsides and the partnership capital again tends to increase.

<PAGE>

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through  year  twelve  (2001) is shown  hereunder;  which  confirms  the general
partners theory on the liquidation habits of the limited partners:

                                            Years ended December 31,

                             Earnings             Capital
                           Liquidation          Liquidation              Total
                         ---------------       --------------        -----------

1994                          $263,206          *$340,011              $603,217

1995                          $270,760          *$184,157              $454,917

1996                          $336,341          *$722,536            $1,058,877

1997                          $399,379        *$1,212,916            $1,612,295

1998                          $456,358        *$1,400,475            $1,856,833

1999                          $490,841        *$1,436,942            $1,927,783

2000                          $454,386        *$1,429,634            $1,884,020

2001                          $374,689        *$1,187,970            $1,562,659

* These amounts represent gross of early withdrawal penalties.


     In some  cases in order to  satisfy  Broker  Dealers  and  other  reporting
requirements, the general partners have valued the limited partners' interest in
the  partnership  on a basis which  utilizes a per unit  system of  calculation,
rather than based upon the investors' capital account. This information has been
reported  in this manner in order to allow the  partnership  to  integrate  with
certain  software used by the Broker Dealers and other  reporting  entities.  In
those cases, the partnership will report to Broker Dealers,  Trust Companies and
others a  "reporting"  number of units based upon a $1.00 per unit  calculation.
The number of reporting units provided will be calculated based upon the limited
partner's  capital  account  value  divided by $1.00.  Each  investor's  capital
account balance is set forth  periodically on the partnership  account statement
provided  to  investors.  The  reporting  units are solely  for  Broker  Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited  partner or the limited  partners' right or interest in
cash flow or any other  economic  benefit in the  partnership.  Each  investor's
capital  account balance is set forth  periodically  on the partnership  account
statement  provided  to  investors.  The  amount of  partnership  earnings  each
investor is entitled to receive is determined by the ratio that each  investor's
capital account bears to the total amount of all investor  capital accounts then
outstanding.  The capital account balance of each investor should be included on
any NASD member client account statement in providing a per unit estimated value
of the client's investment in the partnership in accordance with NASD Rule 2340.

     While the general  partners have set an estimated value for the partnership
units,  such  determination  may not be  representative  of the  ultimate  price
realized  by an  investor  for such units upon sale.  No public  trading  market
exists for the partnership's units and none is likely to develop. Thus, there is
no certainty  that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain  liquidation rights provided by the
partnership,  which may include early  withdrawal  penalties (See the section of
the  Prospectus  entitled  "Risk  Factors  -  Purchase  of Units is a long  term
investment").

<PAGE>

Item 8 - Financial Statements and Supplementary Data


A-Financial Statements

The following financial statements of Redwood Mortgage Investors VII are
included in Item 8:

o           Independent Auditors' Report
o           Balance Sheets - December 31, 2001, and December 31, 2000
o           Statements of Income for the three years ended December 31, 2001
o           Statements of Changes in Partners' Capital for the three years ended
            December 31, 2001
o           Statements of Cash Flows for the three years ended December 31, 2001
o           Notes to Financial Statements

B-Financial Statement Schedules

The following financial statement schedules of Redwood Mortgage Inventors VII
are included in Item 8.

o        Schedule II     Valuation and Qualifying Accounts

o        Schedule IV     Mortgage Loans on Real Estate

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

<PAGE>















                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 2001




<PAGE>


                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                          1855 Olympic Blvd., Suite 225
                             Walnut Creek, CA 94596
                                 (925) 939-8500



                          INDEPENDENT AUDITORS' REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA

     We have  audited  the  accompanying  balance  sheets  of  REDWOOD  MORTGAGE
INVESTORS VII (a  California  Limited  Partnership)  as of December 31, 2001 and
2000 and the related statements of income, changes in partners' capital and cash
flows for the two years then ended. These financial statements and schedules are
the  responsibility of the partnership's  management.  Our  responsibility is to
express an opinion on these  financial  statements  and  schedules  based on our
audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of REDWOOD MORTGAGE INVESTORS
VII as of December 31, 2001 and 2000, and the results of its operations and cash
flows for the two years  then ended in  conformity  with  accounting  principles
generally  accepted in the United States of America.  Also, in our opinion,  the
related financial statement schedules,  when considered in relation to the basic
financial  statements taken as a whole,  present fairly in all material respects
the information set forth therein.


                            /s/ ARMANINO McKENNA LLP






Walnut Creek, California
February 28, 2002


<PAGE>



                        Caporicci, Cropper & Larson, LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                           1575 Treat Blvd, Suite 208
                             Walnut Creek, CA 94598
                                 (925) 932-3860



                          INDEPENDENT AUDITOR'S REPORT


THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA

     We have audited the financial  statements REDWOOD MORTGAGE INVESTORS VII (A
California Limited Partnership) including the accompanying statements of income,
changes in  partners'  capital  and cash flows for the year ended  December  31,
1999. These financial  statements are the  responsibility  of the  partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of REDWOOD MORTGAGE INVESTORS
VII  operations  and cash  flows  for the  year  ended  December  31,  1999,  in
conformity with generally accepted accounting principles.


/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
(Other Auditors prior to Armanino McKenna, LLP)




Walnut Creek, California
March 15, 2000









<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                          DECEMBER 31, 2001 AND 2000

                                     ASSETS

                                                           2001          2000
                                                        ----------    ----------

Cash                                                   $  389,844      $ 269,000
                                                       -----------     ---------

Loans
   Loans secured by deeds of trust, held to maturity   10,091,195     12,794,297
   Loans, unsecured                                       173,731        188,421
                                                       -----------    ----------
                                                       10,264,926     12,982,718
   Less allowance for doubtful accounts                   887,578        850,548
                                                       -----------    ----------
     Net loans                                          9,377,348     12,132,170
                                                       -----------    ----------

Interest and other receivables
   Accrued interest                                       660,551        363,321
   Advances on loans                                       50,665         29,825
                                                       -----------    ----------
     Total interest and other receivables                 711,216        393,146
                                                       -----------    ----------

Real estate owned, held for sale                          872,133        816,094
                                                       -----------    ----------

     Total assets                                    $ 11,350,541    $ 3,610,410
                                                       ===========    ==========

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities
   Notes payable - bank line of credit                $ 1,907,000    $ 3,500,000
   Accounts payable                                        11,295          4,102
                                                       -----------    ----------
     Total liabilities                                  1,918,295      3,504,102
                                                       -----------    ----------

Partners' capital
   Limited partners' capital, subject to redemption
     Net of formation loan receivable of $0 and
     $75,612 for 2001 and 2000, respectively            9,420,268     10,094,330
     General partners' capital                             11,978         11,978
                                                       -----------    ----------
     Total partners' capital                            9,432,246     10,106,308
                                                       -----------    ----------

     Total liabilities and  partners' capital         $11,350,541    $13,610,410
                                                       ===========    ==========





The accompanying notes are an integral part of these financial statements.


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
          FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999


<TABLE>
                                                                             YEARS ENDED DECEMBER 31,
                                                                ----------------------------------------------------
<S>                                                                 <C>                 <C>                <C>
                                                                    2001                2000               1999
                                                                -------------       -------------      -------------
Revenues
   Interest - deeds of trust                                    $1,172,474          $1,406,098           $1,634,416
   Interest - interest bearing accounts                              4,021               4,725                6,813
   Late charges                                                      8,495              11,219               14,367
   Other income                                                      7,391              15,922                7,649
                                                                -------------       -------------      -------------
                                                                 1,192,381           1,437,964            1,663,245
                                                                -------------       -------------      -------------

Expenses
   Mortgage servicing fees                                          94,396             110,713              127,440
   Interest on note payable - bank                                 128,224             257,640              182,350
   Clerical costs through Redwood Mortgage                          38,313              27,032               30,367
   Asset management fees                                            37,233              38,400               44,524
   Provisions for losses on loans
     and real estate acquired through foreclosure                   37,371              65,664              329,057
   Professional services                                            23,868              22,068               21,251
   Printing, supplies and postage                                    9,034              10,293               12,554
   Other                                                             2,745               6,008                5,851
                                                                -------------       -------------      -------------
                                                                   371,184             537,818              753,664
                                                                -------------       -------------      -------------
Net income                                                      $  821,197           $ 900,146            $ 909,581
                                                                =============       =============      =============

Net income:  To general partners (1%)                             $  8,212            $  9,001             $  9,096
             To limited partners (99%)                             812,985             891,145              900,485
                                                                -------------       -------------      -------------
                                                                 $ 821,197           $ 900,146            $ 909,581
                                                                =============       =============      =============

Net income per $1,000 invested by limited partners for entire period:
     -where income is reinvested and compounded                          $85                 $85                $79
                                                                =============       =============      =============

     -where partner receives income in monthly distributions             $82                 $82                $76
                                                                =============       =============      =============
</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

<TABLE>
                                                                                                 GENERAL
                                                    LIMITED PARTNERS' CAPITAL                    PARTNERS'
                                                                                                  CAPITAL
                                       ----------------------------------------------------    ---------------
<S>                                     <C>                <C>               <C>                <C>                <C>
                                        Limited            Formation         Net Limited        General            Total
                                        Partners'            Loan             Partners'         Partners'         Partners'
                                        Accounts          Receivable           Total            Capital           Capital
                                       --------------     -------------    ----------------   -------------    ---------------

Balances at December 31, 1998            $12,190,116        $(253,387)        $11,936,729          $11,978        $11,948,707
   Collections on Formation Loan                   -            75,138             75,138                -             75,138
   Net income                                900,485                 -            900,485            9,096            909,581
   Early withdrawal penalties               (18,553)            12,750            (5,803)                -            (5,803)
   Partners' withdrawals                 (1,909,231)                 -        (1,909,231)          (9,096)        (1,918,327)
                                       --------------     -------------    ----------------   -------------    ---------------

Balances at December 31, 1999            $11,162,817        $(165,499)        $10,997,318          $11,978        $11,009,296
   Collections on Formation Loan                   -            79,505             79,505                -             79,505
   Net income                                891,145                              891,145            9,001            900,146
   Early withdrawal penalties               (15,107)            10,382             (4,725)               -            (4,725)
   Partners' withdrawals                 (1,868,913)                 -         (1,868,913)         (9,001)        (1,877,914)
                                       --------------     -------------    ----------------   -------------    ---------------

Balances at December 31, 2000             10,169,942          (75,612)          10,094,330          11,978         10,106,308
   Collections on Formation Loan                                71,460              71,460               -             71,460
   Net income                                812,985                 -             812,985           8,212            821,197
   Early withdrawal penalties                (7,908)             4,152             (3,756)               -            (3,756)
   Partners' withdrawals                 (1,554,751)                 -          (1,554,751         (8,212)        (1,562,963)
                                       --------------     -------------    ----------------   -------------    ---------------

Balances at December 31, 2001             $9,420,268           $     0         $ 9,420,268        $ 11,978        $ 9,432,246
                                       ==============     =============    ================   =============    ===============

</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
<TABLE>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                        ----------------------------------------------------
<S>                                                                         <C>                 <C>               <C>
                                                                            2001                2000              1999
                                                                        --------------     ---------------    --------------
Cash flows from operating activities
  Net income                                                            $821,197               $900,146          $909,581
  Adjustments to reconcile net income to net cash provided by
      operating activities
    Provision (gain) for doubtful accounts                                37,030                 25,160           332,013
    Provision for losses (gain) on real estate held for sale                  -                  40,504           (2,956)
    Early withdrawal penalty credited to income                          (3,756)                (4,725)           (5,803)

   Change in operating assets and liabilities
     Accrued interest and advances                                     (318,070)               (33,072)          (62,310)

     Accounts payable and accrued expenses                                 7,193               (28,132)            19,687

     Deferred interest on loans                                               -               (115,709)          (16,034)
                                                                        --------------     ---------------    --------------

Net cash provided by operating activities                                543,594                784,172         1,174,178
                                                                        --------------     ---------------    --------------

Cash flows from investing activities
    Principal collected on loans                                       6,123,575              5,324,620         9,314,140
    Loans made                                                       (3,065,935)            (7,112,078)        (7,716,617)
    Payments for real estate held for sale                             (449,197)               (87,392)           (14,111)
    Proceeds from sale of real estate held for sale                       38,620                 64,235            106,532
    Proceeds from unsecured loans                                         14,690                  5,082             18,956
                                                                        --------------     ---------------    --------------

Net cash provided by (used in) investing activities                    2,661,753            (1,805,533)          1,708,900
                                                                        --------------     ---------------    --------------
Cash flows from financing activities
    Net increase (decrease) in note payable-bank                     (1,593,000)              2,700,000        (1,112,663)
    Formation loan collections                                            71,460                 79,505             75,138
    Partners withdrawals                                             (1,562,963)            (1,877,914)        (1,918,327)
                                                                        --------------     ---------------    --------------

Net cash provided by (used in) financing activities                  (3,084,503)                901,591        (2,955,852)
                                                                        --------------     ---------------    --------------

Net increase (decrease) in cash                                          120,844              (119,770)           (72,774)
Cash - beginning of year                                                 269,000                388,770            461,544
                                                                        --------------     ---------------    --------------
Cash - end of year                                                      $389,844               $269,000           $388,770
                                                                        ==============     ===============    ==============


Cash payments for interest                                              $128,244               $257,640           $182,350
                                                                        ==============     ===============    ==============

</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 and 2000


NOTE 1 - ORGANIZATION AND GENERAL

     Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership,  of which the general  partners  are  Michael R.  Burwell and GYMNO
Corporation,  a  California  corporation  owned and  operated on an equal 50/50%
basis by Michael R. Burwell and by D. Russell Burwell, a former general partner.
The partnership was organized to engage in business as a mortgage lender for the
primary  purpose of making loans  secured by Deeds of Trust on  California  real
estate.  Loans are being  arranged and serviced by Redwood  Mortgage  Corp.,  an
affiliate of the general partners.  At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners.

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.  As loans were
identified, partners were transferred from applicant status to admitted partners
participating in loan  operations.  Each month's income is allocated to partners
based upon their  proportionate  share of partners' capital.  Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.

A. Sales Commissions - Formation Loan

     Sales  commissions  are not paid  directly  by the  partnership  out of the
offering proceeds.  Instead, the partnership loans to Redwood Mortgage Corp., an
affiliate  of the general  partners,  amounts to pay all sales  commissions  and
amounts payable in connection with unsolicited  orders. This loan is referred to
as the "Formation Loan". It is unsecured and non-interest bearing.

     Sales  commissions  ranging from 0% (Units sold by general partners) to 10%
of the gross proceeds were paid by Redwood  Mortgage  Corp., an affiliate of the
general  partners  that  arranges and  services the loans.  To finance the sales
commissions, the partnership was authorized to loan to Redwood Mortgage Corp. an
amount not to exceed 8.3% of the gross  proceeds  invested  in the  partnership,
provided that the formation loan for the minimum offering period could be 10% of
the gross proceeds for the minimum offering period.  The formation loan is being
repaid,  without  interest,  in ten  installments of principal,  over a ten-year
period commencing  January 1, 1992. At December 31, 1992, Redwood Mortgage Corp.
had borrowed $914,369 from the partnership to cover sales  commissions  relating
to $11,998,359 limited partner contributions  (7.62%). At December 31, 2001, the
entire  balance  had  been  repaid.  The  Formation  Loan,  which is due from an
affiliate of the general  partners',  had been deducted  from limited  partners'
capital in the balance  sheet.  As amounts are collected  from Redwood  Mortgage
Corp., the deduction from capital will be reduced.

B. Other Organizational and Offering Expenses

     The partnership bears its own syndication  costs,  other than certain sales
commissions,  including legal and accounting  expenses,  printing costs, selling
expenses,  and filing  fees.  Syndication  costs are charged  against  partners'
capital and are being allocated to the individual  partners  consistent with the
Partnership  Agreement.  Such costs were limited to 10% of the gross proceeds of
the offering or $500,000  whichever was less.  The general  partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.

Organization costs of $10,102 and syndication costs of $415,692 were incurred by
the partnership. The sum of organization and syndication costs, $425,794,
approximated 3.55% of the gross proceeds contributed by the limited partners.
Both the organization and syndication costs have been fully amortized and
allocated to the limited partners.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 and 2000


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Accrual Basis

     Revenues and expenses are  accounted for on the accrual basis of accounting
wherein  income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired,  interest is no longer accrued  thereon.
Any  subsequent  payments  on  impaired  loans are  applied  to the  outstanding
balances on the partnership's books.

B. Management Estimates

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet date and revenues and expenses
for the related periods.  Such estimates relate principally to the determination
of the  allowance  for doubtful  accounts,  including  the valuation of impaired
loans,  and the valuation of real estate acquired  through  foreclosure.  Actual
results could differ significantly from these estimates.

C. Loans, Secured by Deeds of Trust

     The  partnership  has both the  intent  and  ability  to hold the  loans to
maturity, i.e., held for long-term investment. Therefore the loans are valued at
cost for financial statement purposes with interest thereon being accrued by the
effective interest method.

     Financial  Accounting Standards Board Statements (SFAS) 114 and 118 provide
that if the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of collateral,  is less than the recorded
investment,  and related amount due and the impairment is considered to be other
than temporary, the carrying amount of the investment (cost) shall be reduced to
the present value of future cash flows.

     At December 31, 2001 and 2000, there were loans  categorized as impaired by
the  partnership  of $889,439,  and  $890,597,  respectively.  In addition,  the
impaired loans have accrued interest and advances totaling $277,479 and $276,204
at December 31, 2001 and 2000,  respectively.  The decrease in carrying value of
the  impaired  loans of $150,092  and  $137,175  at December  31, 2001 and 2000,
respectively  is included in the  allowance for doubtful  accounts.  The average
recorded  investment in the impaired  loans was $890,018,  $687,563 and $484,528
for the years ended December 31, 2001, 2000, and 1999, respectively.  During the
year ended December 31, 2001 and 2000,  $64,987 and $44,999 was received as cash
payments on these loans, respectively.

     As presented in Note 9 to the financial statements as of December 31, 2001,
the  average  loan to  appraised  value of  security  at the time the loans were
consummated  at December 31, 2001 and 2000 was 60.66% and 60.69%,  respectively.
When loans are valued  for  impairment  purposes,  the  allowance  is updated to
reflect the change in the valuation of collateral security.  However, such a low
loan-to-value ratio has the tendency to minimize reductions for impairment.

D. Cash and Cash Equivalents

     The partnership  considers all highly liquid  financial  instruments with a
maturity  of  three  months  or  less to be cash  equivalents.  The  partnership
maintains deposits in financial  institutions that are in excess of amounts that
would be covered by federal insurance. The maximum amount of loss based upon the
deposits  held in the bank that could result from this risk at December 31, 2001
and 2000, is approximately $678,630 and $69,000, respectively.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001 and 2000

E. Real Estate Owned, Held for Sale

     Real estate owned,  held for sale,  includes real estate  acquired  through
foreclosure,  and is  stated  at the  lower of the  recorded  investment  in the
property,  net of any senior  indebtedness,  or at the property's estimated fair
value, less estimated costs to sell.

     The following  schedule  reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December  31, 2001 and 2000,  not  including  real estate in
process of acquisition at December 31, 2001:

                                                         December 31,
                                          --------------------------------------
                                                   2001                 2000
                                                  ------               ------
Costs of properties                            $1,252,189            $1,258,966
Reduction in value                               (380,056)             (442,872)
                                            ---------------     ----------------
Fair value reflected in financial statements     $872,133              $816,094
                                            ===============     ================

F. Income Taxes

     No provision  for Federal and State  income taxes is made in the  financial
statements  since  income taxes are the  obligation  of the partners if and when
income taxes apply.

G. Allowance for Doubtful Accounts

     Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for  recoverability.  Delinquencies are identified and followed
as part of the loan  system.  A  provision  is made for bad debt to  adjust  the
allowance  for doubtful  accounts to an amount  considered  by  management to be
adequate,   with  due   consideration  to  collateral   value,  to  provide  for
unrecoverable  accounts  receivable,  including  impaired  loans,  other  loans,
accrued  interest and advances on loans.  The  composition  of the allowance for
doubtful accounts as of December 31, 2001 and 2000 was as follows:

                                                     December 31,
                                          --------------------------------------
                                                 2001                   2000
                                                ------                -------
Impaired loans                                $150,092                $137,175
Unspecified loans                              593,500                 569,612
Unsecured loans                                143,986                 143,761
                                          ---------------       ----------------
                                              $887,578                $850,548
                                          ===============       ================

Allowance for Doubtful Accounts reconciliation:
Activity in the allowance for doubtful accounts is as follows for the years
ended December 31:
                                            2001            2000         1999
                                           ------          ------        ------
Beginning Balance                        $850,548       $ 828,563      $787,042
Provision for bad debt                     37,371          25,160        72,796
Write-off of bad debt                        (341)         (3,175)      (31,275)
                                        --------------  -----------   ----------
Ending Balance                           $887,578        $850,548      $828,563
                                        ==============  ===========   ==========



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001 and 2000

H. Net Income Per $1,000 Invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by limited partners for the entire period are actual amounts  allocated
to limited  partners  who had their  investment  throughout  the period and have
elected to either  leave their  earnings to compound or have  elected to receive
monthly  distributions of their net income.  Individual income is allocated each
month  based on the  limited  partners'  pro rata  share of  partners'  capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those  individuals  who made or  withdrew  investments  during the
period, or select other options.

I.  Late Fee Revenue

     The partnership  recognizes  late fee revenue when it is earned.  Late fees
are charged at 6% of the monthly  balance,  and are accrued net of an  allowance
for  uncollectible  late fees. For the year ended  December 31, 2001,  2000, and
1999 late fee  revenue  of  $8,495,  $11,219,  and  $14,367,  respectively,  was
recorded.


NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

     The following are commissions and/or fees which will be paid to the general
partners.

A. Mortgage Brokerage Commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans the partnership  may collect an amount  equivalent to 12%
of the loaned amount until 6 months after the termination  date of the offering.
Thereafter, loan brokerage commissions (points) will be limited to an amount not
to exceed 4% of the  total  partnership  assets  per  year.  The loan  brokerage
commissions  are paid by the  borrowers,  and thus,  are not an  expense  of the
partnership.  In 2001,  2000,  and 1999 loan brokerage  commissions  paid by the
borrowers were $84,137, $130,487 and $207,739, respectively.

B. Mortgage Servicing Fees

     Redwood Mortgage Corp.  receives  monthly mortgage  servicing fees of up to
1/8 of 1% (1.5%  annual) of the unpaid  principal,  or such lesser  amount as is
reasonable and customary in the geographic area where the property  securing the
loan is located. Mortgage servicing fees of $94,396, $110,713, and $127,440 were
incurred for the years ended December 31, 2001, 2000 and 1999, respectively.

C. Asset Management Fee

     The general  partners  receive monthly fees for managing the  partnership's
loan  portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annual).  Management fees of $37,233,  $38,400,  and $44,524 were incurred
for years 2001, 2000 and 1999, respectively.

D. Other Fees

     The  partnership  Agreement  provides for other fees such as  reconveyance,
mortgage  assumption and mortgage  extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001 and 2000

E. Income and Losses

     All income and losses are  credited  or charged to  partners in relation to
their respective partnership interests.  The partnership interest of the general
partners (combined) is a total of 1%.

F. Operating Expenses

     Redwood Mortgage Corp., an affiliate of the general partners, is reimbursed
by the partnership for all operating  expenses actually incurred by it on behalf
of the partnership,  including  without  limitation,  out-of-pocket  general and
administration  expenses of the  partnership,  accounting and audit fees,  legal
fees and expenses,  postage and preparation of reports to limited partners. Such
reimbursements are reflected as expenses in the Statements of Income.

G. General Partners Contributions

     The general  partners  collectively or severally were to contribute 1/10 of
1% in cash  contributions as proceeds from the offering were admitted to limited
partner capital.  As of December 31, 1992 a general partner,  Gymno Corporation,
had  contributed  $11,998,  1/10  of  1% of  limited  partner  contributions  in
accordance with Section 4.02(a) of the partnership agreement.


NOTE 4 - OTHER PARTNERSHIP PROVISIONS

A. Term of the Partnership

     The term of the  partnership  is  approximately  40  years,  unless  sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first year.  For years two through  five,  limited  partners may withdraw  their
capital  balance  subject  to the  penalty  provision  set  forth in (E)  below.
Thereafter,  investors  have the right to withdraw over a five-year  period,  or
longer.

B. Election to Receive Monthly, Quarterly or Annual Distributions

     At subscription,  investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations,  or to allow earnings to compound.
Subject to certain  limitations,  a compounding investor may subsequently change
his  election,  but  an  investor's  election  to  have  cash  distributions  is
irrevocable.




<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001 and 2000

C. Profits and Losses

     Profits and losses are allocated  among the limited  partners  according to
their respective capital accounts after 1% is allocated to the general partners.

D. Liquidity, Capital Withdrawals and Early Withdrawals

     There  are  substantial   restrictions  on  transferability  of  Units  and
accordingly an investment in the partnership is not liquid. limited partners had
no right to  withdraw  from the  partnership  or to obtain  the  return of their
capital account for at least one year from the date of purchase of Units,  which
in all  instances  had occurred as of December  31, 2001.  In order to provide a
certain degree of liquidity to the limited  partners after the one-year  period,
limited  partners may withdraw all or part of their  capital  accounts  from the
partnership  in four  quarterly  installments  beginning  on the last day of the
calendar  quarter  following  the quarter in which the Notice of  Withdrawal  is
given,  subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount  withdrawn  early and will be deducted  from the capital  account.
Withdrawal  after the one-year  holding period and before the five-year  holding
period was permitted only upon the terms set forth above.

     After five years from the date of purchase of the Units,  limited  partners
have the  right to  withdraw  from the  partnership,  on an  installment  basis,
generally  this is  done  over a  five-year  period  in  twenty  (20)  quarterly
installments. Once a limited partner has been in the partnership for the minimum
five-year  period,  no penalty will be imposed if  withdrawal  is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal  period,  the general partners may liquidate all or part of a limited
partner's capital account in four quarterly  installments  beginning on the last
day of the  calendar  quarter  following  the  quarter  in which  the  notice of
withdrawal  is given.  This  withdrawal  is  subject  to a 10% early  withdrawal
penalty  applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.

     The partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  partnership's  capacity  to return a limited  partner's
capital  account is restricted to the  availability  of  partnership  cash flow.
Furthermore,  no more than 20% of the total limited  partners'  capital accounts
outstanding  at the  beginning  of any  year,  shall be  liquidated  during  any
calendar year.

E. Guaranteed Interest Rate For Offering Period

     During the period commencing with the day a limited partner was admitted to
the  partnership  and ending 3 months after the offering  termination  date, the
general  partners  guaranteed  an  interest  rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average Cost of Funds
Index for the Eleventh  District Savings  Institutions  (Savings & Loan & Thrift
Institutions)  as  computed  by the  Federal  Home  Loan  Bank of San  Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively.  In 1992 and 1993, actual realization
exceeded the  guaranteed  amount each month.  Beginning  with fiscal years after
1993, the guarantee no longer applies.


NOTE 5 - LEGAL PROCEEDINGS

     The  partnership is involved in various legal actions arising in the normal
course of business.  In the opinion of management,  such matters will not have a
material effect upon the financial position of the Partnership.



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                             DECEMBER 31, 2001 and 2000

NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT

     The  partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of December 31,
2001 and 2000 were $1,907,000,  and $3,500,000,  respectively,  and the interest
rate was 5.0% (4.75%  prime + .25%) at December  31,  2001.  This line of credit
expires May 1, 2003.The line of credit  requires the Partnership to meet certain
financial covenants.  As of December 31, 2001, the Partnership was in compliance
with all loan covenants.

     Should the  general  partners  choose not to renew the line of credit,  the
balance would be converted to a three year fully amortized loan.


NOTE 7 - INCOME TAXES

     The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:

                                                         December 31,
                                             -----------------------------------
                                                  2001                  2000
                                             ----------               ----------

Net assets - partners' capital per
               financial statements          $9,432,246              $10,106,308

Formation loan receivable                             0                   75,612
Allowance for doubtful accounts                 887,578                  850,548
                                           ---------------          ------------
Net assets tax basis                        $10,319,824              $11,032,468
                                           ===============          ============

     In 2001 and  2000,  approximately  68% and 70%,  respectively,  of  taxable
income was allocated to tax exempt  organizations  i.e.,  retirement plans. Such
plans do not have to file income tax returns  unless their  "unrelated  business
income" exceeds $1,000.  Applicable  amounts become taxable when distribution is
made to participants.


NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following  methods and assumptions were used to estimate the fair value
of financial instruments:

     (a) Cash and Cash  Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b)  Loans  (see  note 2 (c))  had a  carrying  value  of  $10,091,195  and
$12,794,297,  at  December  31, 2001 and 2000,  respectively.  The fair value of
these  investments  of  $10,107,321  and  $12,792,716  was estimated  based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for doubtful
accounts along with accrued interest and advances related thereto should also be
considered in evaluating the fair value versus the carrying value.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 and 2000


NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The loans are secured by recorded deeds of trust.  At December 31, 2001 and
2000, there were 36 and 38 loans outstanding,  respectively,  with the following
characteristics:

                                                         2001           2000
                                                      ------------    ----------
Number of loans outstanding                                   36              38
Total loans outstanding                              $10,091,195     $12,794,297

Average loan outstanding                                 280,311         336,692
Average loan as percent of total                           2.78%           2.63%
Average loan as percent of partners' capital               2.97%           3.33%

Largest loan outstanding                               1,000,000       1,995,452
Largest loan as percent of total                           9.91%          15.60%
Largest loan as percent of partners' capital              10.60%          19.74%

Number of counties where security is
       located (all California)                               11              11

Largest percentage of loans in one county                 31.92%          29.47%
Average loan to appraised value of security
        at time loan was consummated                      60.66%          60.69%

Number of loans in foreclosure                                 2               -
Amount of loans in foreclosure                         $ 216,493         $     -

The following categories of loans are pertinent at December 31, 2001 and 2000:

                                                          December 31,
                                                  ------------------------------
                                                     2001                2000
                                                  ------------        ----------

First Trust Deeds                                $5,042,062           $8,720,986
Second Trust Deeds                                4,803,146            4,000,140
Third Trust Deeds                                   245,987               73,171
                                                 --------------       ----------
  Total loans                                    10,091,195           12,794,297
Prior liens due other lenders                     9,318,486            8,761,363
                                                 --------------       ----------
  Total debt                                    $19,409,681          $21,555,660
                                                 ==============       ==========

Appraised property value at time of loan        $31,997,080          $35,518,467
                                                 ==============       ==========

Total investments as a percent of appraisals          60.66%              60.69%
                                                 ==============       ==========

Investments by Type of Property

Owner occupied homes                                $622,435            $218,942
Non-Owner occupied homes                           1,435,444           1,644,636
Apartments                                         1,563,214           2,590,022
Commercial                                         6,470,102           8,340,697
                                                 --------------      -----------
                                                 $10,091,195         $12,794,297
                                                 ==============      ===========


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001 and 2000

Scheduled maturity dates of loans as of December 31, 2001 are as follows:

                    Year Ending
                   December 31,                  Amount
                --------------------       -------------------

                       2002                        $8,432,811
                       2003                           556,862
                       2004                           638,704
                       2005                            40,125
                       2006                           184,380
                    Thereafter                        238,313
                                           -------------------
                       Total                      $10,091,195
                                           ===================

     The scheduled maturities for 2002 above include approximately $4,945,909 in
13 loans  which are past  maturity  at  December  31,  2001.  Although  interest
payments  on most of these  loans are  current,  $656,098  of these  loans  were
categorized as delinquent over 90 days.

     Five  loans  with  interest  overdue  in  excess  of 90 days and  principal
outstanding of $889,439 were considered  impaired at December 31, 2001. That is,
interest accruals are no longer recorded thereon.

     The cash  balance at December  31,  2001 of  $778,630  was in one bank with
interest  bearing  balances  totaling  $304,467.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $678,630.  The partnership's  main
bank is the same financial  institution  that has provided the partnership  with
the  $3,500,000  limit line of credit.  At December 31, 2001,  draw down against
this facility was $1,907,000.

Workout Agreements

     The partnership has negotiated various  contractual workout agreements with
borrowers  whose  loans  are  past  maturity  or who are  delinquent  in  making
payments.  The  partnership  is not  obligated  to fund  additional  money as of
December 31, 2001. As of December 31, 2001 the partnership had  approximately 17
loans under workout agreements totaling $4,569,171 of which 6 of these, totaling
$1,391,163, were paid off by March 15, 2002.

NOTE 10 - COMMITMENTS & CONTINGENCIES

Construction Loans

     The partnership has construction  loans, which are at various completion of
the construction  process at December 31, 2001. The partnership has approved the
borrowers up to a maximum loan balance;  however,  disbursements are made during
completion  phases  throughout the construction  process.  At December 31, 2001,
there was $42,336 of undistributed  construction  loan which will be funded by a
combination of line-of-credit  draw downs and retirement of principal on current
loans.


<PAGE>


SCHEDULE II
                         REDWOOD MORTGAGE INVESTORS VII
                        VALUATION AND QUALIFYING ACCOUNTS
<TABLE>

<S>                     <C>                          <C>                      <C>              <C>
Column A                Column B                     Column C                 Column D         Column E
Description             Balance at                   Additions                Deductions       Balance at
                                       --------------------------------------
                        beginning of          (1)                 (2)         Describe         End of Period
                        of period      Charged to          Charged to               (a)
                                       Costs & Expenses    Other accounts -
                                                           Describe
Year Ended
12/31/01

Deducted from
Asset accounts:

Allowance for
Doubtful accts               $850,548             $37,371                 $0           $(341)         $887,578

Cumulative
write-down of
Real Estate held
For sale (REO)               $442,872                  $0                 $0        $(62,816)         $380,056
                        -------------- ------------------- ------------------ ---------------- ----------------

Total                      $1,293,420             $37,371                 $0        $(63,157)       $1,267,634
                        ============== =================== ================== ================ ================
</TABLE>


(a)    Represents net (loss) or net gain on loans and real estate held for sale.



<PAGE>




SCHEDULE IV
                         REDWOOD MORTGAGE INVESTORS VII
                                LOANS ON REAL ESTATE.
                    RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<S>      <C>       <C>         <C>              <C>               <C>                  <C>          <C>        <C>          <C>
Col. A   Col. B    Col. C      Col. D           Col. E            Col. F               Col. G       Col. H     Col. I       Col. J
Descp.  Interest   Final       Periodic         Prior           Face Amount           Carrying     Principal    Type      Geographic
         Rate %    Maturity    Payment          Liens            of Loans              Amount      Amount of   of Lien      County
                    Date        Terms                           (original             of Loans       Loans                  Location
                                                                  amount)                          Subject to
                                                                                                   Delinquent
                                                                                                   Principal
                                                                                                   or Interest
=======  ==== =========== ============== ================ ================== ================== ============= ======== =============
Apts     6.50%   05/01/06        $ 540.83      $ 89,904.00        $ 75,000.00       $  96,716.11    $27,582.33  2nd       Sacramento
Res     12.75%   07/01/08          370.90       236,164.00          29,700.00          19,788.47             -  2nd       San Mateo
Comm    10.00%   12/01/98        3,619.98                -         412,500.00         404,523.86             -  1st       Alameda
Comm     7.00%   12/01/03          575.74       281,250.00          49,586.38          40,560.78     28,211.26  2nd       Alameda
Comm    12.00%   02/01/99        3,420.76                -         335,638.30         335,638.30             -  1st      Santa Clara
Apts     7.00%   02/10/05          234.06        80,250.00          40,125.00          40,125.00             -  2nd    San Francisco
Comm     9.00%   05/10/02          670.52                -          83,333.33          78,557.42             -  1st          Shasta
Res      8.00%   09/18/03           87.56                -          11,932.83          11,278.10             -  1st          Sonoma
Res      8.00%   09/30/03           89.71                -          12,225.92          11,584.96             -  1st          Sonoma
Comm    12.00%   02/01/99          124.00       312,000.00          12,000.00          12,000.00             -  2nd      Santa Clara
Comm     7.00%   07/01/02        1,131.11                -         146,666.66         136,430.61             -  1st     Contra Costa
Land    11.50%   09/01/99        3,833.33                -         400,000.00         400,000.00     49,833.29  1st       Stanislaus
Land    11.50%   02/01/00        4,791.67                -         500,000.00         267,689.91             -  1st       Stanislaus
Land    11.00%   01/01/01        9,166.67       201,686.00       1,000,000.00         800,112.32             -  2nd       Stanislaus
Land    11.00%   07/01/01        9,166.67       137,737.00       1,000,000.00       1,000,000.00             -  2nd       Stanislaus
Land    11.00%   11/01/00          782.52     1,141,690.00          85,365.85          73,170.73     10,172.76  3rd       Stanislaus
Res     11.00%   11/01/04        1,238.02       553,179.00         130,000.00         128,704.27             -  2nd        San Mateo
Comm    10.25%   12/01/01       10,121.87                -       1,185,000.00         829,500.00             -  1st     Contra Costa
Comm    11.50%   03/01/02        4,165.48                -         434,659.10         434,659.10             -  1st    San Francisco
Comm    11.50%   03/01/02        4,156.03       434,659.00         565,340.92         519,886.41             -  2nd    San Francisco
Land    11.50%   07/01/01        1,753.05     1,000,000.00         182,926.83         182,926.83     22,789.65  2nd       Stanislaus
Res     12.00%   05/01/01          994.57       800,000.00          99,457.15          99,457.15             -  2nd          Placer
Apts    12.00%   05/01/01       19,680.91                -       2,010,689.63         954,488.35             -  1st    San Francisco
Apts    12.00%   08/01/03        4,400.00                -         720,000.00         440,000.00     26,400.00  1st    San Francisco
Apts    12.50%   04/01/02          119.83       440,000.00          31,884.05          31,884.04      1,660.65  2nd    San Francisco
Comm    13.00%  11/01/02         2,220.84       310,381.00         205,000.00         204,866.75             -  2nd         Alameda
Comm    10.00%   12/01/03          470.70                -          53,636.36          53,437.79      1,882.80  1st       Stanislaus
Comm    10.00%   12/01/01          104.60        82,723.00          11,919.19          11,868.04             -  2nd       Stanislaus
Land    12.00%   12/01/01        3,307.50                -         330,750.00         330,750.00             -  1st      Santa Clara
Res     13.00%   05/01/01          922.48       899,457.00          85,151.67          85,151.67             -  3rd          Placer
Res     12.00%   03/01/06          809.59       674,532.00         130,000.00          87,664.17             -  3rd        San Mateo
Comm    10.00%   07/01/11        1,994.94                -         219,537.50         218,523.85             -  1st      Santa Clara
Res     10.50%   09/01/02        7,000.00       428,571.00         800,000.00         800,000.00             -  2nd    San Francisco
Res     12.00%   09/01/04        3,750.00       488,053.00         375,000.00         375,000.00             -  2nd      Los Angeles
Res     12.00%   09/01/02        4,392.50       726,250.00         439,250.00         439,250.00             -  2nd      Santa Clara
Land     8.00%   12/01/04          900.00                -         135,000.00         135,000.00             -  1st       Sacramento
                              -----------      -----------     --------------      -------------    -----------
                              $111,108.94    $9,318,486.00     $12,339,276.67     $10,091,194.99    $168,532.74
                              ===========      ===========     ==============      =============    ===========
</TABLE>

     Notes: Loans classified as `impaired loans' had principal balances totaling
$889,439 at December  31,  2001.  Impaired  loans are defined as loans where the
costs of  related  balances  exceeds  the  anticipated  fair value less costs to
collect. Accrued interest is no longer recorded thereon.

     Amounts  reflected in column G (carrying  amount of loans)  represents both
costs and the tax basis of the loans.


<PAGE>


SCHEDULE IV

Reconciliation of carrying amount (cost) of loans at close of periods

                                           Year ended December 31,
                                 -----------------------------------------------

                                          2001             2000            1999
                                      ---------         --------         -------

Balance at beginning of year         $12,794,297     $11,011,660     $13,209,186
                                      ---------      -----------     -----------
Additions during period:
New loans                              3,065,934       7,112,078       7,716,617
Other                                    354,538               -               -
                                      ----------     -----------     -----------
          Total Additions              3,420,472       7,112,078       7,716,617
                                      ----------     -----------     -----------

Deduction during period:
Collections of principal               6,123,574       5,324,620       9,314,140
Foreclosures                                   -         400,002               -
Cost of loans sold                             -               -               -
Amortization of Premium                        -               -               -
Other                                          -           4,821         200,001
                                      ----------      -----------     ----------
         Total Deductions              6,123,574       5,329,441       9,914,143
                                      -----------     -----------     ----------

Balance at close of year             $10,091,195     $12,794,297     $11,011,660
                                      ===========     ===========     ==========


Item 9 - Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure

     Bruce and/or John  Cropper (the  Croppers)  have been  providing  audit and
accounting  services  to this  partnership  for over 17  years.  They  have been
providing  auditing and accounting  services to the  partnership for the past 13
years through the following CPA firms: 1989-1998 - Parodi & Cropper, CPA's; 1999
- Caporicci,  Cropper & Larson,  LLP and 2000-2001 - Armanino McKenna LLP. Bruce
and John Cropper were shareholders in Cropper Accountancy Corp. through December
31, 2000.

     Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1989
until  April  of 1998.  In May of  1998,  Cropper  Accountancy  Corp.,  formed a
partnership  with Caporicci & Larson creating a new firm,  Caporicci,  Cropper &
Larson,  LLP with offices in Irvine and Walnut Creek,  California.  The Parodi &
Cropper firm was dissolved.

     Effective  January  1,  2001,  Cropper  Accountancy  Corp.,  withdrew  from
Caporicci,  Cropper & Larson,  LLP  partnership.  John Cropper joined the larger
regional firm of Armanino McKenna,  LLP as a partner and Bruce Cropper continues
to provide services through Cropper Accountancy.

     As a result,  the  partnership  has retained the firm of Armanino  McKenna,
LLP, to provide its audit and financial services.  Thus, although there has been
a change in accounting  firms,  there has not been a change in  accountants  and
there have not been any  disagreement  on any matter of  accounting  principles,
practices or financial status disclosures.


<PAGE>

                                    Part III

Item 10 - Directors and Executive Officers of the Registrant

     The partnership has no officers or directors. Rather, the activities of the
partnership  are managed by the two general  partners of which one individual is
Michael  R.  Burwell.  The  second  general  partner  is  Gymno  Corporation,  a
California  corporation,  formed  in  1986.  Mr.  Burwell  is  one  of  the  two
shareholders  of  Gymno  Corporation,  a  California  corporation,  on an  equal
(50-50%) basis.

Item 11 - Executive Compensation

COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

As indicated above in Item 10, the partnership has no officers or directors. The
partnership is managed by the general partners. There are certain fees and other
items paid to management and related parties.

     A more  complete  description  of management  compensation  is found in the
Prospectus, pages 12-13, under the section "Compensation of the General Partners
and the Affiliates",  which is incorporated by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  general  partners  and
affiliates  for services  rendered  during the year ended December 31, 2001. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.

Entity Receiving           Description of Compensation
Compensation                  and Services Rendered                    Amount
------------------     -------------------------------------      --------------

I.Redwood Mortgage     Mortgage Servicing Fee for servicing loans       $ 94,396
    Corp.

General Partners       Asset Management Fee for managing assets......... $37,233
&/or Affiliates

General Partners       1% interest in profits...........................  $8,212

General Partners       Portion of early withdrawal penalties applied
&/or Affiliates        to reduce Formation Loan.......................    $4,151

II.FEES PAID BY BORROWERS ON LOANS PLACED  BY COMPANIES  RELATED TO THE GENERAL
  PARTNERS WITH THE  PARTNERSHIP  (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)

Redwood Mortgage    Mortgage  Brokerage Commissions  for  services in connection
Corp.               with  the  review,  selection,  evaluation, negotiation, and
                    extension of the loans paid by  the borrowers and not by the
                    partnership.......................................   $84,137

Redwood Mortgage    Processing  and Escrow Fees or  services  in connection with
Corp.               notary,  document  preparation,  credit  investigation,  and
                    escrow fees payable by the borrowers and not by the partner-
                    ship..............................................    $2,714

Gymno Corporation
Inc.                Reconveyance Fee..................................      $957


III. IN ADDITION,  THE  GENERAL  PARTNERS  AND/OR RELATED  COMPANIES PAY CERTAIN
     EXPENSES ON BEHALF OF THE  PARTNERSHIP FOR  WHICH IT IS REIMBURSED AS NOTED
     IN THE STATEMENT OF INCOME                              $ 38,313


<PAGE>


Item 12 - Security Ownership of Certain Beneficial Owners and Management

The  general partners  are to own  a combined total of 1% of the partnership in-
cluding a 1% portion of income and losses.

Item 13 - Certain Relationships and Related Transactions

Refer to footnote 3 of the notes to financial statements in Part II item 8 which
describes related party fees and data.

Also  refer  to  the  Prospectus  dated October 20, 1989 (incorporated herein by
reference) on page 12 "Compensation of General Partners and Affiliates" and page
14 "Conflicts of Interest".


                                     Part IV

Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.

A.       Documents filed as part of this report are incorporated:

         1. In Part II, Item 8 under A - Financial Statements.

         2. The Financial Statement Schedules are listed in Part II -
            Item 8 under B - Financial Statement Schedules.

         3.  Exhibits.

   Exhibit No.            Description of Exhibits
------------------        -------------------------

    3.1              Limited Partnership Agreement
    3.2              Form of Certificate of Limited Partnership Interest
    3.3              Certificate of Limited Partnership
   10.1              Escrow Agreement
   10.2              Servicing Agreement
   10.3              (a)  Form of Note secured by Deed of Trust which provides
                     for principal and interest payments.
                     (b)  Form of Note secured by Deed of Trust which provides
                     principal and interest payments and right of assumption
                     (c)  Form of Note secured by Deed of Trust which provides
                     for interest only payments
                     (d)  Form of Note
   10.4              (a)  Deed of Trust and Assignment of Rents to accompany
                     Exhibits 10.3  (a), and (c)
                     (b)  Deed of Trust and Assignment of Rents to accompany
                     Exhibit 10.3 (b)
                     (c)  Deed of Trust to accompany Exhibit 10.3 (d)
   10.5              Promissory Note for Formation Loan
   10.6              Agreement to Seek a Lender

All  of  these exhibits  were previously  filed  as the exhibits to Registrant's
Statement on  Form S-11 (Registration No. 33-30427 and incorporated by reference
herein).


<PAGE>


B........Reports of Form 8-K.

         No reports on Form  8-K have been filed  during the last quarter of the
         period covered by this report. A Form 8-K was filed on February 7, 2000
         relating  to a change in accounting firm. Another Form 8-K was filed on
         February 13, 2001, relating to the subsequent change in accounting firm
         (see Item 9 above).

C.       See A (3) above.

D.       See A (2) above.  Additional reference is made to  the prospectus (S-11
         filed as part of the Registration  statement) dated October 20, 1989 to
         pages  65  through 67 and  Supplement  #5 dated  February 14, 1992  for
         financial data related to Gymno Corporation, a general partner.

                                   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,  thereto duly  authorized on the 26th day of March
2002.

REDWOOD MORTGAGE INVESTORS VII

By:       /S/ Michael R. Burwell
          -----------------------------------
          Michael R. Burwell, General Partner


By:       Gymno Corporation, General Partner

          By:     /S/ Michael R. Burwell
                  -----------------------------------
                  Michael R. Burwell, President,
                  Secretary & Chief Financial Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity indicated on the 26th day of March 2002.

Signature                              Title                          Date


/S/ Michael R. Burwell
------------------------
Michael R. Burwell                 General Partner                March 26, 2002


/S/ Michael R. Burwell
------------------------
Michael R. Burwell          President, Secretary & Chief          March 26, 2002
                             Financial Officer of Gymno
                             Corporation (Principal Financial
                                and Accounting Officer);
                             Director of Gymno Corporation