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                March 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
    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
           MARCH 31, 2001 (unaudited) AND DECEMBER 31, 2000 (audited)


                                     ASSETS
                                                      2001               2000
                                               --------------    ---------------

Cash                                                 $354,014           $269,000
                                               --------------    ---------------

Accounts receivable:
  Loans, secured by deeds of trust                 10,794,375         12,794,297
  Accrued Interest on loans                           452,473            363,321
  Advances on loans                                    29,880             29,825
  Accounts receivables, unsecured                     184,724            188,421
                                               --------------    ---------------
                                                   11,461,452         13,375,864
  Less allowance for doubtful accounts                850,548            850,548
                                               --------------    ---------------

                                                   10,610,904         12,525,316
                                               --------------    ---------------


Real estate owned, acquired through
  foreclosure, held for sale                          855,995            816,094
                                               --------------    ---------------

                                                  $11,820,913        $13,610,410
                                               ==============    ===============

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities:
  Notes payable - bank line of credit              $1,900,000         $3,500,000
  Accounts payable and accrued expenses                11,449              4,102
                                               --------------    ---------------
                                                    1,911,449          3,504,102
                                               --------------    ---------------

Partners' capital
  Limited partners' capital, subject to
    redemption Net of formation loan
    receivable of $53,640 and $75,612 for
    2001 and 2000, respectively                     9,897,486         10,094,330

  General partners' capital                            11,978             11,978
                                               --------------    ---------------

           Total partners' capital                  9,909,464         10,106,308
                                               --------------    ---------------

           Total liabilities and
             partners' capital                    $11,820,913        $13,610,410
                                               ==============    ===============



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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
    FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (unaudited)


                                                        THREE MONTHS
                                                       ENDED MARCH 31
                                      ------------------------------------------
                                              2001                    2000
                                      ------------------     -------------------

Revenues:
  Interest on loans                             $346,349                $305,263
  Interest on bank deposits                           37                     697
  Late charges                                       674                     318
  Other                                            2,001                   1,553
                                      ------------------     -------------------
                                                 349,061                 307,831
                                      ------------------      ------------------

Expenses:
  Loan servicing fees                             21,071                  20,221
  Interest on note payable - bank                 72,771                  27,123
  Clerical costs through Redwood
    Mortgage Corp.                                10,501                   7,146
  Asset management fee                             9,587                   8,198
  Provision for doubtful accounts
    and losses on real estate acquired
    through foreclosure                                0                       0
  Professional services                           20,848                   8,452
  Printing, supplies and postage                   1,310                   1,262
  Other                                            1,488                   1,863
                                      ------------------      ------------------
                                                 137,576                  74,265
                                      ------------------      ------------------


Net Income                                      $211,485                $233,566
                                      ==================      ==================

Net income:  To General Partners (1%)             $2,115                  $2,336
             To Limited Partners (99%)           209,370                 231,230
                                      ------------------      ------------------
                                                $211,485                $233,566
                                      ==================      ==================

Net income per $1,000 invested by
   Limited Partners for entire period:
    - where income is reinvested
      and compounded                              $20.61                  $20.74
                                      ==================      ==================

    - where partner receives income
      in monthly distributions                    $20.47                  $20.60
                                      ==================      ==================








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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
                THE THREE MONTHS ENDED MARCH 31, 2001 (unaudited)


                                                PARTNERS' CAPITAL
                           -----------------------------------------------------
                                             LIMITED PARTNERS' CAPITAL
                           -----------------------------------------------------
                                Capital
                                Account          Formation
                                Limited            Loan
                                Partners         Receivable              Total
                             -------------    ---------------     --------------

Balances at January 1, 1998    $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             79,505             79,505
Net Income                         891,145                  0            891,145
Early withdrawal penalties        (15,107)             10,382            (4,725)
Partners' withdrawals          (1,868,913)                  0        (1,868,913)
                             -------------    ---------------     --------------

Balances at December 31, 2000  $10,169,942          $(75,612)        $10,094,330

Formation Loan collections               0             19,498             19,498
Net Income                         209,370                  0            209,370
Early withdrawal penalties         (3,600)              2,474            (1,126)
Partners' withdrawals            (424,586)                  0          (424,586)
                            --------------    ---------------     --------------

Balances at March 31, 2001      $9,951,126          $(53,640)         $9,897,486
                            ==============    ===============     ==============








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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
                THE THREE MONTHS ENDED MARCH 31, 2001 (unaudited)


                                                  PARTNERS' CAPITAL
                                       -----------------------------------------
                                         Capital Account
                                             General           Total Partners'
                                            Partners               Capital
                                       ------------------    -------------------

Balances at January 1, 1998                       $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                 79,505
Net income                                          9,001                900,146
Early withdrawal penalties                              0                (4,725)
Partners' withdrawals                             (9,001)            (1,877,914)
                                       ------------------    -------------------

Balances at December 31, 2000                     $11,978            $10,106,308

Formation Loan collections                              0                 19,498
Net income                                          2,115                211,485
Early withdrawal penalties                              0                (1,126)
Partners' withdrawals                             (2,115)              (426,701)
                                       ------------------    -------------------

Balances at March 31, 2001                        $11,978             $9,909,464
                                       ==================    ===================










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



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
         FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)



                                                        THREE MONTHS ENDED
                                                            MARCH 31,
                                                     2001                2000
                                              --------------     ---------------
Cash flows from operating activities:
  Net income                                        $211,485            $233,566
  Adjustments to reconcile net income
      to net cash provided by operating
      activities:
    Provision for doubtful accounts                        0                   0
    Provision for losses on real
      estate held for sale                                 0                   0
    Early withdrawal penalty
      credited to income                             (1,126)             (1,202)
    (Increase) decrease in accrued
      interest and advances                         (89,207)            (91,658)
    Increase (decrease) in accounts
      payable and accrued expenses                     7,347                   0
    Increase (decrease) in deferred
      interest on loans                                    0                   0
    Increase (decrease) in prepaid expenses                0             (2,816)
                                              --------------     ---------------

      Net cash provided by operating activities      128,499             137,890
                                               -------------     ---------------

Cash flows from investing activities:
    Principal collected on loans                   3,336,295             130,227
    Loans made                                   (1,336,373)         (1,400,420)
    Additions to Real Estate held for sale          (71,590)             (8,347)
    Dispositions of Real Estate held for sale         31,689                   0
    Accounts Receivable Unsecured (disbursement)           0                   0
    Proceeds from unsecured Accounts Receivable        3,697                   0
                                               -------------     ---------------

      Net cash provided by (used in)
       investing activities                        1,963,718         (1,278,540)
                                              --------------     ---------------

Cash flows from financing activities:
  Net increase (decrease) in note payable-bank   (1,600,000)           1,400,000
  Formation loan collections                          19,498              21,972
  Partners withdrawals                             (426,701)           (465,595)
                                              --------------     ---------------

      Net cash provided by (used in)
       financing activities                      (2,007,203)             956,377
                                              --------------     ---------------

Net increase (decrease) in cash                       85,014           (184,273)

Cash - beginning of period                           269,000             388,770
                                              --------------     ---------------

Cash - end of period                                $354,014            $204,497
                                              ==============     ===============


Interest paid                                        $72,771             $27,123


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


<PAGE>



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


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 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 partner's 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 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
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  March  31,  2001,  $860,729  including  $149,728  in  early  withdrawal
penalties  had been repaid  leaving a balance of $53,640.  The  Formation  Loan,
which is due from an affiliate of the General Partners',  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
                                 MARCH 31, 2001

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.

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. They are therefore 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 March 31, 2001, and years ended  December 31, 2000 and 1999,  reductions
in the  cost  of  loans  categorized  as  impaired  by the  Partnership  totaled
$137,175, $137,175 and $152,231, respectively. The reduction in stated value was
accomplished by increasing the allowance for doubtful accounts.

     As presented in Note 9 to the  financial  statements  as of March 31, 2001,
the  average  loan to  appraised  value of  security  at the time the loans were
consummated  was  61.84%.  When a loan 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
                                 MARCH 31, 2001

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 March 31, 2001 and December 31, 2000:

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

Costs of properties                  $1,298,840                       $1,258,966
Reduction in value                    (442,845)                        (442,872)
                                ---------------                 ----------------
Fair value reflected in
 financial statements                  $855,995                         $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. 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

     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 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, and other accounts
receivable  (unsecured).  The composition of the allowance for doubtful accounts
as of March 31, 2001 and  December 31, 2000 was as follows:  March 31,  December
31, 2001 2000 --------------- ---------------- --------------- ----------------

Impaired loans                         $137,175                         $137,175
Unspecified loans                       569,612                          569,612
Accounts receivable, unsecured          143,761                          143,761
                                   ------------                 ----------------
                                       $850,548                         $850,548
                                   ============                 ================

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 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.


<PAGE>


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

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 loans in an amount up to 12% of the principal amount of the loans 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 for three months through March
31, 2001, and years ended December 31, 2000,  1999, and 1998,  totaled  $45,906,
$130,487, $207,739 and $166,752, respectively.

B. Loan Servicing Fees

     Redwood  Mortgage Corp. also receives  monthly loan 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. Loan servicing fees of $21,071, $110,713, $127,440 and $128,493
were incurred for the three months ended March 31, 2001 and years ended December
31, 2000, 1999 and 1998, respectively.

C. Asset Management Fee

     The General Partners  receive a monthly fee 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). Asset management fees were $9,587,  $38,400,  $44,524 and $16,141
during the three months ended March 31, 2001,  and the years ended  December 31,
2000, 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 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

     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.


<PAGE>


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


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  loan
portfolio.

     Interest  earned prior to  admission  was credited to partners in applicant
status. As loans were made, applicant  subscriptions were transferred to Limited
Partner  status to begin sharing in income from loans 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
                                 MARCH 31, 2001

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 March 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.

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 no longer applies.

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  totaling $184,724 at March 31, 2001. The Partnership is a defendant,
along with numerous other defendants including a developer, contractor and other
lenders, in a lawsuit involving a homeowner's  association's  attempt to recover
"damages" for faulty construction.

     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
                                 MARCH 31, 2001

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 March 31,
2001 and December 31, 2000 were $1,900,000 and $3,500,000 respectively,  and the
interest  rate was 8.75% (8.50%  prime + .25%) at March 31,  2001.  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:

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

Net assets - Partners' Capital
  per financial statements             $9,909,464                    $10,106,308
Formation loan receivable                  53,640                         75,612
Allowance for doubtful accounts           850,548                        850,548
                                  ---------------               ----------------
Net assets tax basis                  $10,813,652                    $11,032,468
                                  ===============               ================

     In 2000 and  1999,  approximately  70% and 69%,  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 $10,794,375 at March 31,
2001.  The fair value of these loans of  $10,783,947  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
                                 MARCH 31, 2001

NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The loans are secured by recorded deeds of trust. At March 31, 2001,  there
were 38 loans outstanding with the following characteristics:

Number of loans outstanding                                                   38
Total loans outstanding                                              $10,794,375

Average loan outstanding                                                $284,063
Average loan as percent of total                                           2.63%

Largest loan outstanding                                              $1,743,724
Largest loan as percent of total                                          16.15%

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

Largest percentage of loans in one county                                 33.34%
Average loan to appraised value of security
  at time loan was consummated                                            61.84%

Number of loans in foreclosure                                                 1


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

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

First Trust Deeds                            $7,275,193               $8,720,986
Second Trust Deeds                            3,329,460                4,000,140
Third Trust Deeds                               189,722                   73,171
                                       ----------------         ----------------
  Total loans                                10,794,375               12,794,297
Prior liens due other lenders                 8,870,562                8,761,363
                                       ----------------         ----------------
  Total debt                                $19,664,937              $21,555,660
                                       ================         ================

Appraised property value at
  time of loan                              $31,800,194              $35,518,467
                                       ================         ================

Total investments as a percent
  of appraisals                                  61.84%                   60.69%
                                       ================         ================

Investments by Type of Property:
  Owner occupied homes                         $248,594                 $218,942
  Non-Owner occupied homes                    1,685,179                1,644,636
  Apartments                                  2,352,449                2,590,022
  Commercial                                  6,508,153                8,340,697
                                       ----------------         ----------------
                                            $10,794,375              $12,794,297
                                       ================         ================


<PAGE>


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

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

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

                       2001                        $7,991,610
                       2002                         1,396,795
                       2003                           557,241
                       2004                           129,417
                       2005                           514,605
                    Thereafter                        204,707
                                           -------------------
                       Total                      $10,794,375
                                           ===================

     The scheduled maturities for 2001 above include approximately $2,464,007 in
eight  loans,  which are past  maturity  at March 31,  2001.  Although  interest
payments  on most of these  loans are  current,  $2,294,007  of these  loans was
categorized as delinquent over 90 days.

     The cash  balance  at March 31,  2001 of  $354,014  was in two  banks  with
interest  bearing  balances  totaling  $318,572.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $151,472.  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 March 31, 2001, draw down against this
facility was $1,900,000. As and when deposits in the Partnership's bank accounts
increase  significantly beyond the insured limit, the funds are either placed in
new loans or used to pay-down on the line of credit balance.




<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 March
31, 2001, Partners' Capital totaled $9,909,464.

     At March 31, 2001, the Partnership loans outstanding  totaled  $10,794,375.
This  represents  a decline  of  $1,999,922  from the  December  31,  2000 loans
balance.  This  reduction in loans  outstanding as of March 31, 2001 was chiefly
due to loan  repayments and loan pay-offs being used to fund  withdrawals to the
Limited  Partners of $424,586  during  three months  through  March 31, 2001 and
partial reduction in line of credit balance by $1,600,000.  Loans decreased from
$13,449,741 from 1997 to $12,794,297 in 2000, a decrease of $655,444 chiefly due
to the ability of the General Partners to reduce amounts of real estate owned by
$289,743,   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 loans
on December 27,  1989,  and as of March 31,  2001,  had  credited the  Partners'
accounts with income at an average annualized (compounded) yield of 7.85%.

     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.  However,  since  January  2001,  the Federal  Reserve has been
dramatically cutting its core interest rates with four successive 1/2% cuts. The
latest cut being April 18, 2001,  which reduced the Federal Funds Rate to 4.50%.
The effect of the cuts has greatly  reduced  short-term  interest rates and to a
lesser extent reduced  long-term  interest  rates.  This will have the effect of
lowering interest rates in the marketplace. 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.  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 2001 over the next 12
months.  As of March 31, 2001, the Partnership Real Estate Owned account and the
investment  in  Partnership  account had a combined  balance of $855,995.  These
accounts  had  combined  balances of $307,931  and  $816,094 for the years ended
December 31, 1999 and 2000,  respectively.  The increase in the Partnership Real
Estate Owned account is the result of the  acquisition  of one property  through
foreclosure.  The General Partners  anticipate that the annualized yield for the
new year, 2001, will be between 8% and 9%.

     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 March 31, 2001, the prime rate was 8.50% and
the line of credit rate was 8.75%. As of March 31, 2001,  December 31, 2000, and
December 31, 1999,  the  balances  were  $1,900,000,  $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 March 31, 2001, the
Partnership is current with its interest payments on the line of credit. For the
years ended  December 31, 1998,  1999,  2000 and three months  through March 31,
2001, interest paid was $170,867, $182,350, $257,390 and $72,771, 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-four  years.
Loan Servicing Fees in 1998 were $128,493,  in 1999 were $127,440,  in 2000 were
$110,713,  and three  months  through  March 31, 2001 were  $21,071.  These Loan
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 year 2000,  Management Fees paid were $38,400,  and for
three months through March 31, 2001,  management  fee paid was $9,587.  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,
2000, and 2001.  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 March 31, 2001,
there was one property in foreclosure.  Cash is constantly  being generated from
interest earnings,  late charges,  pre-payment penalties,  amortization of loans
and  pay-off  on notes.  Currently,  cash  flow  exceeds  Partnership  expenses,
earnings and capital payout  requirements.  Excess cash flow will be invested in
new loan  opportunities  when available,  used to reduce the Partnership  credit
line or 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 $423,054,  $329,057, $65,664,
and $0. As  provision  for doubtful  accounts  for the years ended  December 31,
1998,  1999,  2000, and three months through March 31, 2001,  respectively.  The
provision for doubtful  accounts was  decreased  $11,441 to $423,054 in 1998, by
$93,997 to $329,057 in 1999,  by $263,393 to $65,664 in 2000,  and by $65,664 to
$0 in 2001. These decreases reflect reduced expected REO anticipated  losses and
improved collections of secured and unsecured receivables.

     The Partnership makes loans primarily in Northern  California.  As of March
31, 2001,  approximately 60%,  ($6,452,734) 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.  Since January  2001,  the Federal  Reserve has reduced the
Federal  Funds  Rate to  4.5%.  The  effect  of the  cuts  has  greatly  reduced
short-term  interest  rates and to a lesser extent  reduced  long-term  interest
rates.  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 advantage  themselves of these lower rates.  The
Partnership  may  face  prepayments  in the  existing  portfolio  from  existing
borrowers advantaging themselves 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 similar  interest rates.  Therefore,
at this time we do not believe that the average  loan  portfolio  interest  rate
will decline substantially in the coming months.

     The  reduction in the Federal  Funds rates by the Federal  Reserve has been
primarily  prompted by concerns of the United  States  economy  slowing down and
perhaps slipping into recession.  Additionally, both the New York and tech-heavy
NASDAQ  stock  markets  have  suffered  significant  set backs  over the last 10
months.  The technology  stocks have been  particularly  hard hit. Many of these
technology  stocks have their  headquarters  in the Silicon  Valley,  one of the
primary  lending  areas of the  Partnership.  While there  certainly  has been a
decline in economic activity,  there has not manifested a clear trend in housing
prices,  the  security  behind many of our loans.  The  housing  market has been
incredibly  strong  throughout  the San Francisco Bay Area with multiple  offers
above  the  asking  price a common  if not  expected  occurrence  in the sale of
residential  properties  for  more  than a  year.  A  return  to a  more  normal
residential real estate market seems to be developing in the low to high average
priced homes with little, if any, value reductions. High end priced homes in the
more than one million dollar category may sustain greater value depreciation.

     The  commercial  leasing  market is  experiencing  an increase in available
vacancies and considerable  available sublease space availability.  According to
CB Richard Ellis  commercial  office  vacancies  have increased in San Francisco
from 3.4% in the fourth  quarter  of 2000 to 6.9% in the first  quarter of 2001.
Lease rates are falling as  landlords  compete for  tenants.  This will have the
effect of lowering rents for buildings,  which lose tenants through  turnover or
financial  difficulties.  There may be some  declines  in  values as  commercial
property  values are  primarily  reflective  of the net income the  property can
generate.  The  decline  in  rents  may be  offset  by  reductions  in  investor
capitalization  rates  as  investors  lower  return  expectations  as  long-term
interest rates decline.

     The  Partnership had an average loan to value ratio computed as of the date
the loan was made of 61.84%,  as of March 31, 2001. This did not account for any
increases in property  values for loans,  which were acquired by the Partnership
during  1997,  1998,  1999,  and  2000  when  Northern  California  Real  Estate
substantially  increased  in  value.  This  low loan to value  will  assist  the
Partnership in weathering downturns in real estate values if they materialize in
the coming months.

     On April 6th 2001,  Pacific Gas and Electric  (PG&E)  California's  biggest
public  utility  company  filed for  Chapter 11  bankruptcy.  The full effect of
PG&E's bankruptcy is yet to be played out. Stockholders, other utility companies
and banks that have loaned PG&E millions of dollars were  particularly hit hard.
When a company like PG&E goes  bankrupt,  it has a ripple  effect.  This has not
only  affected  the  hi-tech  and  manufacturing  industries,  professional  and
commercial businesses, transportation and utilities sectors, but every household
and  individual as a whole.  The crisis,  which means higher costs to consumers,
could adversely affect the economy,  employment and the Partnership's lending in
its  commercial  sector.  The state  government,  PG&E and  others  are  working
diligently  to solve the power crisis in  California.  The likely result is that
electric and natural gas will cost  consumers  more than ever  before.  This may
have some  effect upon real  estate  values as demand for real  estate  could be
reduced  as  companies  make long term  plans to locate in areas  without  power
delivery problems and lower cost power availability.

     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 $43,815, $38,238, $9,039, and
$ 0, for the three months ended March 31, 2001, and for the years ended December
31, 2000, 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.  It appears that
the  efforts  of the  General  Partners  to  subdivide  the land  will meet with
success. This will allow the arsenic contamination portion of the property to be
delivered to the party responsible for the arsenic contamination.  The remaining
land will be made available for development or sale by 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, 1998,  1999,  2000, and three months through March 31, 2001,
the  Partnership  made  distributions  of  earnings  to Limited  Partners  after
allocation of syndication costs of $456,358,  $490,841,  $454,386,  and $99,944,
respectively.  Distribution of Earnings to Limited  Partners after allocation of
syndication  costs for the years ended December 31, 1998,  1999,  2000 and three
months  through  March 31, 2001 to Limited  Partners'  capital  accounts and not
withdrawn was $381,747,  $409,644, $436,759, and $109,426,  respectively.  As of
December 31 1998,  December  31,  1999,  and March 31,  2001,  Limited  Partners
electing  to  withdraw  earnings  represented  53%,  54% and 49% 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, 2000, and
three months through March 31, 2001, $381,458,  $231,025,  $179,343, and $44,996
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, 1999, 2000, and three months through March 31, 2001,  respectively and
is expected by the General Partners to commonly occur at these levels.

     Additionally,  for the years ended December 31, 1998, 1999, 2000, and three
months through March 31, 2001, $1,019,017, $1,205,917, $1,250,291, and $283,246,
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.

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through  year eleven  (2000) and three  months  through  March 31, 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

   Three months through
      March 31, 2001               $99,944         *$328,242            $428,186

* These amounts represent gross of early withdrawal penalties.

     After 25 years of active participation in the mortgage business, D. Russell
Burwell,  our founder and a General  Partner of the  Partnership  has decided to
retire  effective  September 30, 2001.  "Russ" has enjoyed a long and successful
career.  His original  business model, upon which our Partnership has its roots,
has withstood the test of time through varying  economic  cycles.  Collectively,
the various Redwood Mortgage Investors  Partnerships (I-VIII) have grown from an
idea to over  $110,000,000  in assets and  produced  excellent  results  for the
Limited Partners under Russ's  stewardship in Redwood  Mortgage  Investor's VII.
This  Partnership  originally  raised  $11,998,359  in Limited  Partner  Capital
contributions  and at March 31, 2001 had $9,897,486 in remaining Limited Partner
Capital.

     Over the last  few  years,  Russ has been  passing  along  his  duties  and
responsibilities  to the  remaining  General  Partners.  The  remaining  General
Partners  are  Mr.  Michael   Burwell  and  Gymno   Corporation,   a  California
Corporation.  Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors  VII since its  inception  and has been  employed by Redwood  Mortgage
Corp, an affiliate of the Partnership,  since 1979. The Partnership  through the
remaining  General Partners and the employees of its affiliate  Redwood Mortgage
Corp. is well  prepared for Russ's  departure and looks forward to emulating the
steady  consistent  returns that the Limited  Partners have enjoyed during Russ'
tenure.

     Mr. D. Russell Burwell is providing this notification pursuant to Article 8
Section  8.02  of the  Limited  Partnership  Agreement.  The  remaining  General
Partners have elected to continue the business of the  Partnership  as described
in Article 9 Section 9.01(d) of the Limited Partnership Agreement.


     The General  Partners have  determined  that for purposes of establishing a
value  for  reporting   purposes,   including   brokerage  and  trustee  account
statements,  the estimated value of the Limited  Partnership  interests on a per
unit  basis is equal to the  capital  account  balance of each  investor  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,  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").

     Bruce and/or John Cropper (the  Croppers)  have been  performing  audit and
accounting  services  to the  General  Partners  of the  Partnership  and  their
affiliates for over 16 years through the following CPA firms: 1993-1998 - Parodi
& Cropper,  CPA's; 1999 - Caporicci,  Cropper & Larson,  LLP and 2000 - 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 1993
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.  The  Croppers  continue to
perform audit and accounting services to the General Partners of the partnership
and their affiliates.

     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  disagreements  on any  matter  of  accounting  principles,
practices or financial status disclosures.




<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 are 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 three months ended March 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 Corp.  Loan Servicing Fee
                            for servicing loan ..........................$21,071

General Partners            Asset Management Fee
  &/or Affiliates           for managing assets.......................... $9,587


General Partners            1% interest in profits....................... $2,115

General Partners &/or       Portion of early withdrawal
Affiliates                  penalties applied to reduce
                            Formation Loan............................... $2,474

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 Corp.      Mortgage Brokerage Commissions for
                            services in connection with the
                            review, selection, evaluation,
                            negotiation, and extension of the
                            loan paid by the borrowers and not
                            by the Partnership...........................$45,906

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....................... $1,655

Gymno Corporation Inc.      Reconveyance Fee................................ $41

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..................$10,501




<PAGE>


                   LOAN PORTFOLIO SUMMARY AS OF MARCH 31, 2001

                             Partnership Highlights


Loan to Value Ratios

First Trust Deeds                                                $7,275,192.56
Appraised Value of Properties *                                  12,943,595.00
   Total Investment as a % of Appraised Value                           56.21%

First Trust Deed Loans                                           $7,275,192.56
Second Trust Deed Loans                                           3,329,460.53
Third Trust Deed Loans                                              189,722.40
                                                             ------------------

                                                                $10,794,375.49

First Trust Deeds due other Lenders                               7,392,466.00
Second Trust Deeds due other Lenders                              1,478,096.00
                                                             ------------------


Total Debt                                                      $19,664,937.49
                                                             ==================


   Appraised Property Value *                                   $31,800,194.00
                                                                ==============
   Total Investment as a % of Appraised Value                           61.84%

Number of Loans Outstanding                                                 38

Average Investment                                                  284,062.51
Average Investment as a % of total loans                                 2.63%
Largest Investment Outstanding                                    1,743,724.13
Largest Investment as a % of total loans                                16.15%

Loans as a Percentage of Total Loans

First Trust Deed Loans                                                  67.40%
Second Trust Deed Loans                                                 30.84%
Third Trust Deed Loans                                                   1.76%
                                                              -----------------

Total                                                                  100.00%

    Loans by Type of Property            Amount                        Percent

Owner Occupied Homes                     $248,593.76                     2.30%
Non Owner Occupied Homes                1,685,179.03                    15.61%
Apartments                              2,352,449.28                    21.80%
Commercial                              6,508,153.42                    60.29%
                                                              -----------------
                                    -----------------
Total                                 $10,794,375.49                   100.00%

Statement of Conditions of Loans
         Number of Loans in Foreclosure              1



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



<PAGE>




Diversification by County

County                                          Total Loans          Percent

San Francisco                                 $3,598,584.69           33.34%
Stanislaus                                     2,789,397.08           25.84%
Alameda                                        1,026,387.10            9.51%
Contra Costa                                     967,396.96            8.96%
Placer                                           878,793.59            8.14%
Santa Clara                                      678,388.30            6.28%
Santa Cruz                                       474,480.05            4.40%
San Mateo                                        181,977.29            1.69%
Sacramento                                        96,716.11             .90%
Shasta                                            79,162.59             .73%
Sonoma                                            23,091.73             .21%

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

Total                                        $10,794,375.49          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
                                    Form 8-K was filed on February 7, 2000,
                                    relating to a change in accounting firms.
                                    Another Form 8-K was filed on February 13,
                                    2001, relating to the subsequent change in
                                    accounting firms. On April 11, 2001, the
                                    Partnership filed yet another form 8-K
                                    regarding D. Russell Burwell's retirement as
                                    more fully discussed earlier under
                                    "Management Discussion" area.






<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 7th day of May 2001.

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 7th day of May 2001.


Signature                                 Title                          Date


/S/ D. Russell Burwell
-----------------------------------
D. Russell Burwell                       General Partner             May 7, 2001


/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell                       General Partner             May 7, 2001


/S/ D. Russell Burwell
-----------------------------------
D. Russell Burwell                      President of Gymno           May 7, 2001
                                        Corporation,
                                   (Principal Executive Officer);
                                   Director of Gymno Corporation


/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell                      Secretary/Treasurer          May 7, 2001
                                        of Gymno Corporation
                                  (Principal Financial and
                                     Accounting Officer);
                                  Director of Gymno Corporation