FORM 10-Q
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

For Period Ended                              September 30, 2000
--------------------------------------------------------------------------------
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
    incorporation of organization)                            Identification No.

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

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

     NOT                                                              APPLICABLE
--------------------------------------------------------------------------------
   (Former name, former address and former fiscal year,
                                               if changed since last report)

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

YES      XX                                       NO
-----------------                                 -----------------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

YES                     NO                      NOT APPLICABLE    X
   -----------            -----------                         -----------

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest date.

                                 NOT APPLICABLE


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
         SEPTEMBER 30, 2000 (unaudited) AND DECEMBER 31, 1999 (audited)

                                     ASSETS

<TABLE>
<S>                                                                                      <C>                <C>
                                                                               September 30,       December 31,
                                                                                   2000                1999
                                                                                (unaudited)          (audited)
                                                                             -----------------    ----------------
Cash                                                                                 $111,250            $388,770
                                                                             -----------------    ----------------
Accounts receivable:
  Mortgage Investments, secured by deeds of trust                                  13,084,849          11,011,660
  Accrued Interest on Mortgage Investments                                            490,847             357,177
  Advances on Mortgage Investments                                                     28,292              31,669
  Accounts receivables, unsecured                                                     161,349             163,085
                                                                             -----------------    ----------------

                                                                                   13,765,337          11,563,591
  Less allowance for doubtful accounts                                                839,428             828,563
                                                                             -----------------    ----------------

                                                                                   12,925,909          10,735,028
                                                                             -----------------    ----------------

Real estate in process of acquisition, to be sold                                           0             525,510
Real estate owned, acquired through foreclosure, held for sale                        818,996             307,931
                                                                             -----------------    ----------------

                                                                                  $13,856,155         $11,957,239
                                                                             =================    ================


                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Notes payable - bank line of credit                                              $3,500,000            $800,000
  Accounts payable and accrued expenses                                                12,207              32,234
  Deferred Interest                                                                         0             115,709
                                                                             -----------------    ----------------
                                                                                   $3,512,207             947,943
                                                                             -----------------    ----------------

Partners' Capital

  Limited Partners' capital, subject to redemption (Note 4E):
     Net of Formation Loan receivable of $99,583 and $165,499 for
         2000 and 1999, respectively                                               10,331,970          10,997,318

  General Partners' capital,                                                           11,978              11,978
                                                                             -----------------    ----------------

           Total Partners' Capital                                                 10,343,948          11,009,296
                                                                             -----------------    ----------------

           Total Liabilities and Partners' Capital                                $13,856,155         $11,957,239
                                                                             =================    ================


</TABLE>


See accompanying notes to financial statements.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
                 FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000
                         AND SEPTEMBER 30, 1999 (unaudited)

<TABLE>
                                                           NINE MONTHS                     THREE MONTHS ENDED
                                                        ENDED SEPTEMBER 30                    SEPTEMBER 30

                                                  -------------------------------     ------------------------------
<S>                                                         <C>             <C>                <C>             <C>
                                                            2000            1999               2000            1999
                                                  --------------- ---------------     -------------- ---------------
Revenues:
  Interest on Mortgage Investments                    $1,008,205      $1,323,660           $355,633        $421,475
  Interest on bank deposits                                1,391           2,406                429           1,137
  Late charges                                             2,657          11,930              1,553             692
  Other                                                   14,412           6,063              4,971           1,995
                                                  --------------- ---------------     -------------- ---------------
                                                       1,026,665       1,344,059            362,586         425,299
                                                  --------------- ---------------     -------------- ---------------

Expenses:
  Mortgage servicing fees                                 70,472         109,209             28,469          23,305
  Interest on note payable - bank                        170,181         172,455             86,314          54,432
  Clerical costs through Redwood Mortgage

Corp.                                                     20,310          22,795              6,385           7,190
  Asset management fee                                    28,565          11,249             10,065           3,670
  Provision for doubtful accounts and losses
     on real estate acquired thru foreclosure             14,040         313,483            (1,594)         100,770
  Professional services                                   28,324          20,321              7,474             700
  Printing, supplies and postage                           8,198          10,012              3,245           2,351
  Other                                                    3,373           5,106                259           1,063
                                                  --------------- ---------------     -------------- ---------------
                                                         343,463         664,630            140,617         193,481
                                                  --------------- ---------------     -------------- ---------------


Net Income                                              $683,202        $679,429           $221,969        $231,818
                                                  =============== ===============     ============== ===============

Net income:  To General Partners (1%)                     $6,832          $6,794             $2,220          $2,318
             To Limited Partners (99%)           676,370         672,635            219,749         229,500
                                                  --------------- ---------------     -------------- ---------------
                                                        $683,202        $679,429           $221,969        $231,818
                                                  =============== ===============     ============== ===============

Net income per $1,000 invested by Limited Partners for entire period:

     -where income is reinvested and
compounded                                                $63.29          $57.51             $20.61          $19.67
                                                  =============== ===============     ============== ===============

     -where partner receives income in
      monthly distributions                               $61.58          $56.09             $20.47          $19.54
                                                  =============== ===============     ============== ===============







</TABLE>


See accompanying notes to financial statements.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
              THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)

                                PARTNERS' CAPITAL
                           -----------------------------------------------------
                            LIMITED PARTNERS' CAPITAL
                           -----------------------------------------------------
<TABLE>

                                             Capital
                                             Account-          Formation
                                             Limited              Loan
                                            Partners         Receivable Total

                                          ---------------    ---------------     --------------
<S>                                          <C>                 <C>               <C>
Balances at December 31, 1996                $14,002,529         $(429,163)        $13,573,366

Formation Loan collections                             0             60,223             60,223
Net income                                       818,610                  0            818,610
Early withdrawal penalties                      (40,258)             27,665           (12,593)
Partners' withdrawals                        (1,572,037)                  0        (1,572,037)
                                          ---------------    ---------------     --------------

Balances at December 31, 1997                $13,208,844         $(341,275)        $12,867,569

Formation Loan collections                             0             66,908             66,908
Net Income                                       838,105                  0            838,105
Early withdrawal penalties                      (30,529)             20,980            (9,549)
Partners' withdrawals                        (1,826,304)                  0        (1,826,304)
                                          ---------------    ---------------     --------------

Balances at December 31, 1998                $12,190,116         $(253,387)        $11,936,729

Formation Loan collections                             0             75,138             75,138
Net Income                                       900,485                  0            900,485
Early withdrawal penalties                      (18,553)             12,750            (5,803)
Partners' withdrawals                        (1,909,231)                  0        (1,909,231)
                                          ---------------    ---------------     --------------

Balances at December 31, 1999                $11,162,817         $(165,499)        $10,997,318

Formation Loan collections                             0             57,534             57,534
Net Income                                       676,370                  0            676,370
Early withdrawal penalties                      (12,198)              8,382            (3,816)
Partners' withdrawals                        (1,395,436)                  0        (1,395,436)
                                          ---------------    ---------------     --------------

Balances at September 30, 2000               $10,431,553          $(99,583)        $10,331,970
                                          ===============    ===============     ==============




</TABLE>



See accompanying notes to financial statements


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (audited) AND
              THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (unaudited)

                                PARTNERS' CAPITAL

                  -------------------------------------------------

                                           Capital Account
                                               General          Total Partners'
                                              Partners              Capital
                                          ------------------    ----------------
Balances at December 31, 1996                  $11,978            $13,585,344

Formation Loan collections                           0                 60,223
Net income                                       8,269                826,879
Early withdrawal penalties                           0                (12,593)
Partners' withdrawals                           (8,269)            (1,580,306)
                                          ------------------    ----------------

Balances at December 31, 1997                   $11,978            $12,879,547

Formation Loan collections                            0                 66,908
Net income                                        8,466                846,571
Early withdrawal penalties                            0                 (9,549)
Partners' withdrawals                            (8,466)            (1,834,770)
                                          ------------------    ----------------

Balances at December 31, 1998                   $11,978            $11,948,707

Formation Loan collections                            0                 75,138
Net income                                        9,096                909,581
Early withdrawal penalties                            0                 (5,803)
Partners' withdrawals                            (9,096)            (1,918,327)
                                          ------------------    ----------------

Balances at December 31, 1999                   $11,978            $11,009,296

Formation Loan collections                            0                 57,534
Net income                                        6,832                683,202
Early withdrawal penalties                            0                 (3,816)
Partners' withdrawals                            (6,832)            (1,402,268)
                                          ------------------    ----------------

Balances at September 30, 2000                  $11,978            $10,343,948
                                          ==================    ================








See accompanying notes to financial statements



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
        FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (unaudited)
<TABLE>
                                                                              NINE MONTHS ENDED SEPTEMBER 30,


                                                                     ---------------------------------------------------
<S>                                                                         <C>                 <C>
                                                                            2000                1999
                                                                        --------------     ---------------
Cash flows from operating activities:
  Net income                                                                 $683,202            $679,429
  Adjustments to reconcile net income to net cash provided by
      operating activities:
    Provision for doubtful accounts                                             3,940             258,478
    Provision for losses on real estate held for sale                          10,100              55,005
    Early withdrawal penalty credited to income                               (3,816)             (4,568)
    (Increase) decrease in accrued interest and advances                    (130,293)             117,029
    Increase (decrease) in accounts payable and accrued expenses             (20,027)             (9,996)
    Increase (decrease) in deferred interest on Mortgage Investments        (115,709)           (131,743)
                                                                        --------------     ---------------
      Net cash provided by operating activities                               427,397             963,634
                                                                        --------------     ---------------

Cash flows from investing activities:

    Principal collected on mortgage investments                             4,067,472           7,059,108
    Mortgage Investments made                                             (6,140,661)         (5,431,803)
    Additions to Real Estate held for sale                                   (47,089)             (4,650)
    Dispositions of Real Estate held for sale                                  58,359             103,696
    Accounts Receivable Unsecured (disbursement)                              (1,321)             (5,956)
    Proceeds from unsecured Accounts Receivable                                 3,057              20,984
                                                                        --------------     ---------------
      Net cash provided by (used in) investing activities                 (2,060,183)           1,741,379
                                                                        --------------     ---------------

Cash flows from financing activities:

  Net increase (decrease) in note payable-bank                              2,700,000         (1,462,663)
  Formation loan collections                                                   57,534              55,880
  Partners withdrawals                                                     (1,402,268         (1,420,186)
                                                                        --------------     ---------------
      Net cash provided by (used in) financing activities                   1,355,266         (2,826,969)
                                                                        --------------     ---------------

Net increase (decrease) in cash                                             (277,520)           (121,956)

Cash - beginning of period                                                    388,770             461,544
                                                                        --------------     ---------------
Cash - end of period                                                         $111,250            $339,588
                                                                        ==============     ===============





</TABLE>



See accompanying notes to financial statements.
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000


NOTE 1 - ORGANIZATION AND GENERAL

Redwood  Mortgage  Investors VII, (the  "Partnership")  is a California  Limited
Partnership,  of which the General Partners are D. Russell  Burwell,  Michael R.
Burwell and Gymno  Corporation,  a California  corporation owned and operated by
the individual  General  Partners.  The  Partnership  was organized to engage in
business  as a  mortgage  lender  for the  primary  purpose  of making  Mortgage
Investments  secured  by  Deeds of Trust on  California  real  estate.  Mortgage
Investments  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 totalling $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 Mortgage  Investments  were
identified, partners were transferred from applicant status to admitted partners
participating  in  Mortgage  Investment  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 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 Mortgage  Investments.  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  provided  that the
Formation  Loan  for the  minimum  offering  period  could  be 10% of the  gross
proceeds for that period.  The Formation  Loan is unsecured and 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%).  Through September 30, 2000,
$814,786  including  $145,256  in early  withdrawal  penalties,  had been repaid
leaving a Formation  Loan  balance of $99,583  which is due from an affiliate of
the General  Partners' and has 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

Organizational and offering expenses,  other than sales commissions,  (including
printing costs, attorney and accountant fees, and other costs), were paid by the
Partnership.  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 Partners.  Both the
Organization  and  Syndication  Costs have been fully amortized and allocated to
the Partners.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII

                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 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 Mortgage  Investment is  categorized  as impaired,  interest is no longer
accrued thereon.

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  Mortgage
Investments,  and the  valuation of real estate  acquired  through  foreclosure.
Actual results could differ significantly from these estimates.

C. Mortgage Investments, Secured by Deeds of Trust

The Partnership has both the intent and ability to hold the Mortgage Investments
to maturity,  i.e., held for long-term investment.  They are therefore valued at
cost for financial statement purposes with interest thereon being accrued by the
simple interest method.

Financial  Accounting  Standards Board Statements  (SFAS) 114 and 118 (effective
January 1, 1995) provide that if the probable  ultimate recovery of the carrying
amount of a Mortgage  Investment,  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.
The adoption of these statements did not have a material effect on the financial
statements  of the  Partnership  because that was  substantially  the  valuation
method previously used on impaired Mortgage Investments..

At September  30, 2000,  December 31, 1999 and December 31, 1998,  reductions in
the cost of Mortgage  Investments  categorized  as  impaired by the  Partnership
totalled $152,231, $152,231 and $38,634,  respectively.  The reduction in stated
value was accomplished by increasing the allowance for doubtful accounts.

As presented in Note 10 to the  financial  statements  as of September 30, 2000,
the average  mortgage  investment to appraised value of security at the time the
loans were  consummated  was 59.77%.  When a Mortgage  Investment  is valued for
impairment  purposes,  an  updating  is  made  in the  valuation  of  collateral
security.  However,  such a low loan to value ratio tends to minimize reductions
for impairment.

D. Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents  include
interest bearing and non-interest bearing bank deposits.

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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000


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 September 30, 2000 and 1999,  including  the  aforementioned
real estate owned:

                                   September 30,                December 31,
                               -----------------            -----------------
                                      2000                         1999
                               -----------------            -----------------

Costs of properties               $1,221,284                   $1,182,701
Reduction in value                  (402,288)                    (349,260)
                               ----------------             -----------------

Fair value reflected in
  financial statements              $818,996                     $833,441
                               ================             =================

Effective  January 1, 1996, the Partnership  adopted the provisions of statement
No 121 (SFAS 121) of the Financial Accounting  Standards Board,  "Accounting for
the  Impairment  of Long Lived  Assets and for Long Lived  Assets to be disposed
of".  The  adoption  of  SFAS  121  did  not  have  a  material  impact  on  the
Partnership's  financial position because the methods indicated were essentially
those previously used by the Partnership.

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. Organization and Syndication Costs

The Partnership  bears its own  organization  and syndication  costs (other than
certain  sales  commissions  and  fees  described  above)  including  legal  and
accounting expenses,  printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees.  Organizational  costs of $10,102 were capitalized and were
amortized  over a five year period.  Syndication  costs of $415,692 were charged
against partners' capital and were allocated to individual  partners  consistent
with the Partnership Agreement.

H. Allowance for Doubtful Accounts

Mortgage  Investments  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 Mortgage  Investment system. A provision is made 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 Mortgage Investments, other Mortgage Investments,
accrued  interest  and  advances on  Mortgage  Investments,  and other  accounts
receivable  (unsecured).  The composition of the allowance for doubtful accounts
as of September 30, 2000 and December 31, 1999 was as follows:


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000


                                   September 30,                    December 31,
                                       2000                             1999
                                 ----------------               ----------------

Impaired mortgage investments        $152,231                         $152,231
Unspecified mortgage investments      609,668                          598,803
Accounts receivable, unsecured         77,529                           77,529
                                 ---------------                ----------------
                                     $839,428                         $828,563
                                 ===============                ================

I. 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 have  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.  However,  the net income per $1,000  average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000


NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

The  following  are  commissions  and/or  fees which will be paid to the General
Partners and/or related parties.

A. Mortgage Brokerage Commissions

Redwood Mortgage Corp.  receives mortgage brokerage  commissions for services in
connection with the review, selection, evaluation,  negotiation and extension of
Mortgage  Investments  in an  amount  up to 12% of the  principal  amount of the
Mortgage  Investments  through the period ending 6 months after the  termination
date of the offering.  Thereafter,  commissions  are limited to an amount not to
exceed 4% of the total Partnership assets per year. Such commissions are paid by
the borrowers, and are not an expense to the Partnership. Loan brokerage fees as
of September 30, 2000 and for the years ended 1999, and 1998, totalled $122,196,
$207,739 and $166,752, respectively.

B. Mortgage Servicing Fees

Redwood Mortgage Corp. also 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
Mortgage Investment is located. Mortgage servicing fees of $70,472, $127,440 and
$128,493 were incurred for nine months through  September 30, 2000 and for years
ended 1999 and 1998, respectively.

C. Asset Management Fee

The  General  Partners  receive a monthly  fee for  managing  the  Partnership's
Mortgage  Investment  portfolio  and  operations of up to 1/32 of 1% of the "net
asset value" (3/8 of 1% annual). Asset management fees were $28,565, $44,524 and
$16,141 for the nine months  through  September 30, 2000 and for the years ended
1999 and 1998, 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.

E. Income and Losses

All income is 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%.


<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

F. Operating Expenses

The General Partners or their affiliate  (Redwood Mortgage Corp.) are reimbursed
by the  Partnership  for all  operating  expenses  actually  incurred by them 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. Applicant Status

Subscription  funds  received from  purchasers of units were not admitted to the
Partnership until appropriate lending  opportunities were available.  During the
period  prior  to the  time of  admission,  which  ranged  between  1-120  days,
purchasers'  subscriptions  remained  irrevocable  and earned  interest at money
market  rates,  which were lower than the return on the  Partnership's  Mortgage
Investment portfolio.

Interest earned prior to admission was credited to partners in applicant status.
As Mortgage Investments were made,  applicant  subscriptions were transferred to
Limited  Partner  status to begin  sharing in income from  Mortgage  Investments
secured by deeds of trust.  The interest  earned  prior to admission  was either
paid to the  investors  or  transferred  to  Partners'  Capital  along  with the
original investment.

B. 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 five
years,  subject to the  penalty  provision  set forth in (E) below.  Thereafter,
investors have the right to withdraw over a five-year period, or longer.

C. Election to Receive Monthly, Quarterly or Annual Distributions

Upon  subscriptions,  investors elected either to receive monthly,  quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.

D. 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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

E. 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 September 30, 2000.  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.

F. 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 expired.

NOTE 5 - LEGAL PROCEEDINGS

Legal actions against  borrowers and other involved  parties have been initiated
by the Partnership to help assure payments against unsecured accounts receivable
totalling $161,349 at September 30, 2000. The Partnership is a defendant,  along
with numerous defendants including a developer, contractor and other lenders, in
a lawsuit involving the Partnership's attempt to recover it's investment in Real
Estate acquired through foreclosure.

Management  anticipates that the ultimate results of these cases will not have a
material  adverse  effect  on the  net  assets  of  the  Partnership,  with  due
consideration  having  been given in  arriving  at the  allowance  for  doubtful
accounts.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT

The  Partnership  has a bank line of credit  secured by its Mortgage  Investment
portfolio of up to $3,500,000 at .25% over prime. The balances outstanding as of
September  30,  2000  and  December  31,  1999  were  $3,500,000  and  $800,000,
respectively, and the interest rate was 9.75% (9.50% prime + .25%). This line of
credit expires May 1, 2003.

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:

                                       September 30,                December 31,
                                           2000                        1999
                                     -----------------             -------------

Net assets - Partners' Capital
  per financial statements              $10,343,948                  $11,009,296

Formation loan receivable                    99,583                      165,499
Allowance for doubtful accounts             839,428                      828,563
                                     -----------------             -------------
Net assets tax basis                    $11,282,959                  $12,003,358
                                     =================             =============

In 1999,  approximately  69% 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) The Carrying Value of Mortgage Investments - (see note 2 (c) is $13,084,849.
The  September  30,  2000 fair  value of these  investments  of  $13,062,558  is
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
                               SEPTEMBER 30, 2000

NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

The Mortgage  Investments  are secured by recorded deeds of trust.  At September
30, 2000,  there were 35 Mortgage  Investments  outstanding  with the  following
characteristics:

Number of Mortgage Investments outstanding                                    35
Total Mortgage Investments outstanding                               $13,084,849

Average Mortgage Investment outstanding                                 $373,853
Average Mortgage Investment as percent of total                            2.86%
Average Mortgage Investment as percent of Partners' Capital                3.61%

Largest Mortgage Investment outstanding                               $1,841,612
Largest Mortgage Investment as percent of total                           14.07%
Largest Mortgage Investment as percent of Partners' Capital               17.80%

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

Largest percentage of Mortgage Investments in one county                  27.01%
Average Mortgage Investment to appraised value of security
  at time loan was consummated                                            59.77%

Number of Mortgage Investments in foreclosure                                  0


The following  categories of Mortgage Investments are pertinent at September 30,
2000 and December 31, 1999:

                                          September 30,             December 31,
                                        ------------------         -------------
                                             2000                       1999
                                        ------------------         -------------

First Trust Deeds                          $8,359,757               $6,077,532
Second Trust Deeds                          4,651,921                4,272,714
Third Trust Deeds                              73,171                  661,414
                                        ------------------         -------------
 Total Mortgage Investments                13,084,849               11,011,660
Prior liens due other lenders               9,393,048               10,389,233
                                        ------------------         -------------
 Total debt                               $22,477,897              $21,400,893
                                        ==================         =============

Appraised property value at
 time of loan                             $37,608,400              $34,223,193
                                        ==================         =============

Total investments as a percent
 of appraisals                                  59.77%                   62.53%
                                       ==================         =============

Investments by Type of Property

Owner occupied homes                         $220,661                 $340,864
Non-Owner occupied homes                    1,511,274                2,347,394
Apartments                                  2,418,453                  182,675
Commercial                                  8,934,461                8,140,727
                                       -----------------         ---------------
                                          $13,084,849              $11,011,660
                                      ==================         ===============



<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

Scheduled maturity dates of mortgage investments as of September 30, 2000 are as
follows:

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

                       2000                                         $1,973,127
                       2001                                          8,755,274
                       2002                                          1,030,846
                       2003                                            503,781
                       2004                                            130,446
                    Thereafter                                         691,375
                                                             ------------------
                                                                   $13,084,849
                                                             ==================

The  scheduled  maturities  for 2000 include  approximately  $1,899,956 in eight
Mortgage  Investments  which are past maturity at September  30, 2000.  Interest
payments  on most of  these  loans  are  current.  $826,885  of  these  Mortgage
Investments were categorized as delinquent over 90 days.

Two mortgage  investments  with  principal  outstanding of $137,277 had interest
payments  overdue in excess of 90 days. Six Mortgage  Investments with principal
outstanding of $1,099,474 were  considered  impaired at September 30, 2000. That
is interest accruals are no longer recorded thereon.

The cash  balance  at  September  30,  2000 of  $111,250  was in two banks  with
interest bearing balances totalling  $104,244.  The balances remained within the
FDIC insurance limits (up to $100,000 per bank). 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 September 30, 2000, draw down against this
facility was $3,500,000.


<PAGE>


           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
September 30, 2000, Partners' Capital totaled $10,343,948.

At September 30, 2000, the Partnership Mortgage Investments outstanding totalled
$13,084,849.  This  represents a decline of $124,337  from the December 31, 1998
Mortgage Investments balance. This reduction in Mortgage Investments outstanding
as of  September  30,  2000  was  chiefly  due to cash  proceeds  from  Mortgage
Investment  repayments being used to fund withdrawals to the Limited Partners of
$3,335,417,  during 1999, and nine months through  September 30, 2000.  This was
offset  by an  increase  in Note  Payable-Bank  of  $1,587,337  reinvestment  of
earnings of  $746,652,  reduction in accrued  interest,  other  receivables  and
investment of cash. Mortgage investments decreased from $13,449,741 from 1997 to
$13,209,186  in 1998,  a decrease of $240,555  chiefly due to the ability of the
General  Partners to reduce  amounts of real estate owned by  $289,743,  convert
it's  partnership  interest  to cash of  $346,017,  reinvestment  of earnings of
$390,213,  offset by payments to  withdrawing  Limited  Partners  $1,856,833,  a
reduction of  outstanding  Note Payable - Bank of $1,112,663  and  investment of
cash. The Partnership  began funding Mortgage  Investments on December 27, 1989,
and as of September 30, 2000, had credited the Partners  accounts with income at
an average annualized (compounded) yield of 7.84%.

Since the Fall of 1999,  mortgage  interest rates have been rising due primarily
to economic  forces and by the Federal  Reserve raising its core interest rates.
New Mortgage Investments will be originated at higher interest rates which could
increase the average return across the entire Mortgage Investment portfolio held
by the Partnership.  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.  Although  the  rates  charged  by the
Partnership  are  influenced by the level of interest  rates in the market,  the
General  Partners do not anticipate that rates charged by the Partnership to its
borrowers will change  significantly from the beginning of 2000 over the next 12
months.  As of September 30, 2000 the Partnership  Real Estate Owned account and
the investment in Partnership account had a combined balance of $818,996.  These
accounts  had  combined  balances of $397,396  and  $307,931 for the years ended
December 31, 1998 and 1999,  respectively.  The increase in the Partnership Real
Estate  Owned  account is the result of the  acquisition  of a property  through
foreclosure.  The General Partners  anticipate that the annualized yield for the
new year, 2000, will be higher than the previous year.

The  Partnership  has a line of credit  with a  commercial  bank  secured by its
Mortgage  Investments to a limit of $3,500,000,  at a variable interest rate set
at one-quarter  percent above the prime rate. As of September 30, 2000, December
31, 1999 and December  31, 1998,  the  balances  were  $3,500,000,  $800,000 and
$1,912,663,  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 Mortgage Investments are not currently available. Since most of
the Mortgage  Investments  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 Mortgage  Investments  funded  using the line of credit  generate
revenue for the  Partnership.  As of September  30,  2000,  the  Partnership  is
current  with its interest  payments on the line of credit.  For the years ended
December  31,  1998,  1999 and nine months  period  ended  September  30,  2000,
interest paid was $170,867, $182,350 and $170,181, respectively.

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-three  years.  Mortgage
Servicing  Fees in 1998 were  $128,493,  in 1999 were  $127,440  and during nine
months through  September 30, 2000 were $70,472.  These Mortgage  Servicing Fees
were declining as the  outstanding  mortgage loan portfolio  balances  declined.
Asset  Management Fees increased to $16,141 in 1998, and to $44,524 in 1999. For
the nine months through September 30, 2000, Management Fees paid was $28,565. In
1997,  the  General  Partners  waived  or  partially  waived  this  fee  to  the
Partnership and increased the Asset  Management Fee to its allowed amount of 3/8
of 1% in 1999 and 2000.  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


<PAGE>




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 September 30, 2000,  there were no properties in  foreclosure.
Cash is  constantly  being  generated  from  interest  earnings,  late  charges,
pre-payment  penalties,  amortization  of  Mortgage  Investments  and pay-off on
notes. Currently,  cash flow exceeds Partnership expenses,  earnings and capital
payout  requirements.  Excess  cash  flow  will  be  invested  in  new  Mortgage
Investment  opportunities when available,  used to reduce the Partnership credit
line or other Partnership business.

The  General  Partners  regularly  review  the  Mortgage  Investment  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  $434,495,
$423,054, $329,057 and $14,040, as provision for doubtful accounts for the years
ended December 31, 1997, 1998 and 1999 and nine months ended September 30, 2000,
respectively.  The  provision  for doubtful  accounts was  decreased  $11,441 to
$423,054  in 1998 and by $93,997 to $329,057 in 1999.  These  decreases  reflect
reduced expected REO anticipated losses and improved  collections of secured and
unsecured receivables.

Extracts from recent publications  regarding  California's economy,  population,
employment and real estate said:

"In the next 10 years we  (California)  will again add  approximately  5 million
people,  but with far less building  activity.  In the decade after that we will
add another 7 million  people with a similar  pace of  building  activity.  This
mismatch  between  demand  and  supply  will not only  manifest  itself  in home
appreciation,  but  also  crowding  in  existing  housing  -  something  one now
experiences not only in old city quarters like Europe and Asia but  increasingly
now in places like Manhattan and San Francisco...California's unemployment rate,
currently  at 5 percent  will hold  steady at this  level for the next 12 months
whereas the U.S. unemployment rate rises from 4.1% this year to 4.4% next year."
(Source: UCLA Anderson Forecast, September, 2000)

"- Only 31 percent of Californians  can afford to buy a median-priced  home, the
California Association of Realtors said yesterday.

That figure,  calculated for September,  compared to a 53 percent  affordability
rating  nationwide and was down from the same period a year ago, when 36 percent
of state residents could afford to buy a home.

The median price of a single-family home in September was $248,020, the Associa-
tion  reported  last month."  (Source:  Redwood City  Daily  News,  November 3,
2000)

"Interest Rates - a really toss up - if the economy does indeed continue to slow
the Feds will keep a "steady  as we go"  course  but if they  sense a heating up
they will inch up rates again.

Of  course,  for all of us in the Bay Area we will be  focused  on the high tech
industries and real estate.  As with most emerging  industries  some of the high
tech players will survive and do very well - think Cisco,  Sun,  Oracle,  Intel,
Exodus,  America OnLine/Time Warner and others with a dream and no business plan
will fall out. As for real estate we have seen gains of from 35-105 percent over
the last few years.  Next year  appreciation  will slow down to more  historical
valuations  but the demand will still be strong.  The key for sellers will be to
price  their  homes  "properly"  (don't  live in the  market of six months ago -
today's market has slowed down somewhat and is different). The key for buyers is
to accept that the demand is still  strong and that prices are not "out of line"
- people said that 2 years ago, 1 year ago, six months ago.


<PAGE>



Perhaps in America we find  ourselves  after 10 years "on hold" - a time to take
stock and smell the roses we have bloomed.  And that's not all bad.  (Source:
The Independent published by Redwood City Almanac, October 28, 2000)

To  the  Partnership,   low  unemployment,   an  increasing   population,   home
appreciation,  and  relatively  stable  interest  rates  all  bode  well for the
California  and San  Francisco  Bay Area real  estate  markets,  our  underlying
mortgage loan collateral.

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 $21,855,  $9,039, and $ 0, for the nine
months period ended September 30, 2000 and for the years ended December 31, 1999
and 1998,  respectively,  has been invested with that of two other Partnerships.
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, and is unrelated to the Arsenic Contamination for which a major chemical
company remains  responsible.  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 General Partners are
attempting to subdivide  this land into two parcels and exploring the ability to
obtain new zoning for this property.

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, 1998,  1999 and nine months  through  September 30, 2000, the
Partnership made  distributions of earnings to Limited Partners after allocation
of  syndication  costs  of  $456,358,   $490,841  and  $339,362,   respectively.
Distribution  of Earnings to Limited  Partners  after  allocation of syndication
costs for the years  ended  December  31,  1998,  1999 and nine  months  through
September 30, 2000 to Limited  Partners'  capital accounts and not withdrawn was
$381,747, $409,644 and $337,008,  respectively. As of December 31 1998, December
31, 1999 and September 30, 2000,  Limited Partners electing to withdraw earnings
represented 53%, 54% and 52% 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, 1998, 1999 and for the
nine months through September 30, 2000,  $381,458,  $231,025 and $142,975,  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,
1998, December 31, 1999 and September 30, 2000,  respectively and is expected by
the General Partners to commonly occur at these levels.

Additionally,  for the years ended December 31, 1998, December 31, 1999 and nine
months  through  September  30,  2000,  $1,019,017,   $1,205,917  and  $925,297,
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  which the  General  Partners  then  expect a portion  of the  Limited
Partners  to  avail  themselves  of.  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,  at 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 ten (1999) and nine months ended September 30, 2000, is shown hereunder:

<TABLE>
                                            Years ended December 31,

<S>                          <C>                  <C>                   <C>                      <C>
                             1994                 1995                  1996                     1997
                   ---------------       --------------        --------------         ----------------

Earnings                 $263,206             $270,760              $336,341                 $399,379
Capital                 *$340,011            *$184,157             *$722,536              *$1,212,916
                   ---------------       --------------       --------------         ----------------
Total                    $603,217             $454,917            $1,058,877               $1,612,295
                   ===============       ==============        ==============         ================

                                                                    For the nine months
                             1998                 1999           through September 30,2000
                   ---------------       --------------        ------------------------------

Earnings                 $456,358             $490,841                       $339,362
Capital               *$1,400,475          *$1,436,942                    *$1,068,272
                   ---------------       --------------                 --------------
Total                  $1,856,833           $1,927,783                     $1,407,634
                   ===============       ==============                 ==============
</TABLE>


* These amounts represent gross of early withdrawal penalties.

The Year 2000 was considered by most to be a challenge for the entire world with
respect to the conversion of existing computerized  operations.  The Partnership
relies on Redwood Mortgage Corp., third parties and various software vendors for
its  hardware  and  software  needs.  Since  year  2000  has  come,  we have not
experienced  any computer  hardware  breakdowns.  We assume that our testing and
upgrading of computer  hardware prior to year 2000 identified all hardware areas
of concern.  Computer  software  programs  are all  operational  with only minor
problems  being  experienced  with  some  programs.  These  problems  are  being
addressed  by the  appropriate  software  vendors or software  programmers.  All
annual  computerized  functions  have not yet been run,  however  testing of the
operations has taken place. We do not expect any significant problems.

The costs of updating our computer systems were  substantially  borne by the non
affiliated  software  vendors and the in house  system  conversion  costs to the
Partnership were marginal.

Year 2000 issues do not appear to have affected,  in any significant manner, any
industries or businesses in the marketplace in which the Partnership  places its
loans.  We believe that year 2000 issues are a non-event and will have little if
any  future  effect  on  the  Partnership,  its  affiliates  or the  people  and
businesses with which it associates.

The foregoing analysis of year 2000 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.


<PAGE>


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 nine months ended September 30, 2000. 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
    Corp.                   servicing Mortgage Investments               $70,472

General Partners            Asset Management Fee
&/or Affiliates             for managing assets                          $28,565

General Partners            1% interest in profits                        $6,832

General Partners &/or       Portion  of  early  withdrawal penalties
Affiliates                  applied  to  reduce Formation Loan            $8,382

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

Redwood Mortgage Corp.      Mortgage Brokerage Commissions for services in
                            connection with the review, selection, evaluation,
                            negotiation, and extension of the Mortgage Invest-
                            ments paid by the borrowers and not by the
                            Partnership                                 $122,196

Redwood Mortgage Corp.      Processing and Escrow Fees for services in
                            connection with notary, document preparation,
                            credit investigation, and escrow fees payable
                            by the borrowers and not by the Partnership   $3,311
Gymno Corporation Inc.
                            Reconveyance Fee                                $783


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. . . . . . . . . . . . . . . . . . . . . . . . . . . $20,310




<PAGE>


         MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 2000

                             Partnership Highlights

Mortgage Investment to Value Ratios

First Trust Deeds                                                $8,359,756.92
Appraised Value of Properties *                                  14,788,943.00
   Total Investment as a % of Appraised Value                           56.53%

First Trust Deed Mortgage Investments                             8,359,756.92
Second Trust Deed Mortgage Investments                            4,651,921.54
Third Trust Deed Mortgage Investments                                73,170.73
                                                             ------------------
                                                                $13,084,849.19

First Trust Deeds due other Lenders                               8,393,048.00
Second Trust Deeds due other Lenders                              1,000,000.00
                                                             ------------------
Total Debt                                                      $22,477,897.19

   Appraised Property Value *                                    37,608,400.00
   Total Investment as a % of Appraised Value                           59.77%

Number of Mortgage Investments Outstanding                                  35

Average Investment                                                 $373,852.83
Average Investment as a % of Net Assets                                  3.61%
Largest Investment Outstanding                                    1,841,612.18
Largest Investment as a % of Net Assets                                 17.80%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                   63.89%
Second Trust Deed Mortgage Investments                                  35.55%
Third Trust Deed Mortgage Investments                                    0.56%
                                                              -----------------
Total                                                                  100.00%

Mortgage Investments by Type of

Property                                   Amount                      Percent

Owner Occupied Homes                     $220,660.85                     1.69%
Non Owner Occupied Homes                1,511,274.16                    11.55%
Apartments                              2,418,453.29                    18.48%
Commercial                              8,934,460.89                    68.28%
                                     -----------------        -----------------
Total                                 $13,084,849.19                   100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 0



*Values  used  are the  appraisal  values  utilized  at the  time  the  mortgage
investment was consummated.


<PAGE>




Diversification by County

County                                          Total Loans          Percent

San Francisco                                 $3,534,080.43           27.01%
Stanislaus                                     2,996,554.16           22.90%
Contra Costa                                   2,115,818.40           16.17%
San Mateo                                      1,652,451.52           12.63%
Alameda                                          824,722.00            6.30%
Placer                                           703,735.06            5.38%
Santa Clara                                      583,019.76            4.45%
Santa Cruz                                       474,847.08            3.63%
Sacramento                                        96,716.11            0.74%
Shasta                                            79,684.44            0.61%
Sonoma                                            23,220.23            0.18%


                                         -------------------      -----------
Total                                        $13,084,849.19          100.00%







<PAGE>





                                     PART 2
                                OTHER INFORMATION

         Item 1.           Legal Proceedings

                                    None,  where the Partnership is a defendant.
                                    Please refer to Note 6 of Notes to Financial
                                    Statements.

         Item 2.           Changes in the Securities

                                    Not Applicable

         Item 3.           Defaults upon Senior Securities

                                    Not Applicable

         Item 4.           Submission of Matters to a Vote of Security Holders

                                    Not Applicable

         Item 5.           Other Information

                                    Not Applicable

         Item 6.           Exhibits and Reports on Form 8-K

                           (a)      Exhibits

                                    Not Applicable

                           (b)      Form 8-K

                                    The registrant  has not filed any reports on
                                     Form 8-K  during  the  three  month  period
                                     ending September 30, 2000.


<PAGE>


                                   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 9th day of November,
2000.

REDWOOD MORTGAGE INVESTORS VII

By:       /S/ D. Russell Burwell
          ---------------------------------------------
          D. Russell Burwell, General Partner

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

By:       Gymno Corporation, General Partner

          By:     /S/ D. Russell Burwell

                  ---------------------------------------------
                  D. Russell Burwell, President

          By:     /S/ Michael R. Burwell

                  ---------------------------------------------
                  Michael R. Burwell, Secretary/Treasurer

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 9th day of November, 2000.

Signature                              Title                          Date

/S/ D. Russell Burwell

----------------------------
D. Russell Burwell                General Partner               November 9, 2000


/S/ Michael R. Burwell

----------------------------
Michael R. Burwell                General Partner               November 9, 2000



/S/ D. Russell Burwell

----------------------------
D. Russell Burwell        President of Gymno Corporation,       November 9, 2000
                           (Principal Executive Officer);
                           Director of Gymno Corporation


/S/ Michael R. Burwell

---------------------------
Michael R. Burwell        Secretary/Treasurer of Gymno          November 9, 2000
                         Corporation (Principal Financial
                             and Accounting Officer);
                          Director of Gymno Corporation