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                                 June 30, 2001
--------------------------------------------------------------------------------
Commission file number                             000-19992
--------------------------------------------------------------------------------

                         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



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
            JUNE 30, 2001 (unaudited) AND DECEMBER 31, 2000 (audited)


                                     ASSETS
                                                June 30,          December 31,
                                                  2001                2000
                                               (unaudited)         (audited)
                                             --------------    -----------------

Cash                                               $305,657             $269,000

Accounts receivable:
  Loans, secured by deeds of trust                9,457,350           12,794,297
  Accrued Interest on loans                         506,087              363,321
  Advances on loans                                  44,898               29,825
  Accounts receivables, unsecured                   181,231              188,421
                                             --------------    -----------------
                                                 10,189,566           13,375,864
  Less allowance for doubtful accounts              871,319              850,548
                                             --------------    -----------------

                                                  9,318,247           12,525,316
                                             --------------    -----------------


Real estate owned, acquired through
  foreclosure, held for sale                        668,064              816,094
                                             --------------    -----------------

     Total assets                               $10,291,968          $13,610,410
                                             ==============    =================

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities
  Notes payable - bank line of credit                $540,000         $3,500,000
  Accounts payable and accrued expenses                 4,102              4,102
                                               --------------    ---------------
     Total liabilities                                544,102          3,504,102
                                               --------------    ---------------

Partners' capital
  Limited Partners' capital, subject to redemption
     Net of Formation Loan receivable of
      $31,668 and $75,612 for 2001 and
         2000, respectively                         9,735,888         10,094,330

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

      Total partners' capital                       9,747,866         10,106,308
                                               --------------    ---------------

      Total liabilities and partners' capital     $10,291,968        $13,610,410
                                               ==============    ===============




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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
 FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (unaudited)

<TABLE>
<S>                                              <C>                <C>               <C>                <C>


                                                    Six Months        Six Months        Three Months       Three Months
                                                      Ended             Ended              Ended               Ended
                                                     June 30,          June 30,           June 30,           June 30,
                                                       2001              2000               2001               2000
                                                  ---------------    -------------     ---------------    ----------------
Revenues:
  Interest on loans                                     $632,044         $652,571            $285,695            $347,308
  Interest on bank deposits                                2,411              962               2,374                 265
  Late charges                                             3,084            1,104               2,410                 786
  Other                                                    2,864            9,441                 863               7,888
                                                  ---------------    -------------     ---------------    ----------------
                                                         640,403          664,078             291,342             356,247
                                                  ---------------    -------------     ---------------    ----------------

Expenses:
  Loan servicing fees                                     39,826           42,003              18,755              21,782
  Interest on note payable - bank                         92,199           83,867              19,428              56,744
  Clerical costs through Redwood Mortgage   Corp.         20,379           13,925               9,878               6,779
  Asset management fee                                    18,968           18,500               9,381              10,302
  Provision for doubtful accounts and losses
     on real estate acquired through foreclosure          20,771           15,634              20,771              15,634
  Professional services                                   20,349           20,850                (499)             12,398
  Printing, supplies and postage                           5,533            4,953               4,223               3,691
  Other                                                    4,004            3,114               2,516               1,251
                                                  ---------------    -------------     ---------------    ----------------
                                                         222,029          202,846              84,453             128,581
                                                  ---------------    -------------     ---------------    ----------------


Net Income                                              $418,374         $461,232            $206,889            $227,666
                                                  ===============    =============     ===============    ================

Net income:  To General Partners (1%)                     $4,184           $4,612              $2,069              $2,276
                     To Limited Partners (99%)           414,190          456,620             204,820             225,390
                                                  ---------------    -------------     ---------------    ----------------
                                                        $418,374         $461,232            $206,889            $227,666
                                                  ===============    =============     ===============    ================

Net income per $1,000 invested by Limited
 Partners for entire period:
    - where income is reinvested and
       compounded                                         $41.65           $41.82              $20.61              $20.65
                                                  ===============    =============     ===============    ================

    - where partner receives income in
         monthly distributions                            $40.94           $41.11              $20.47              $20.51
                                                  ===============    =============     ===============    ================

</TABLE>






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

                         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 SIX MONTHS ENDED JUNE 30, 2001 (unaudited)


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

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        40,563         40,563
Net Income                                414,190             0        414,190
Early withdrawal penalties                 (4,920)        3,381         (1,539)
Partners' withdrawals                    (811,656)            0       (811,656)
                                      -------------    ----------   ------------

Balances at June 30, 2001              $9,767,556      $(31,668)    $9,735,888
                                      =============    ==========   ============








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

                         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 SIX MONTHS ENDED JUNE 30, 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                 40,563
Net income                                        4,184                418,374
Early withdrawal penalties                            0                 (1,539)
Partners' withdrawals                            (4,184)              (815,840)
                                        ------------------      ----------------

Balances at June 30, 2001                       $11,978             $9,747,866
                                        ==================      ================










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


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
           FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (unaudited)



                                                             SIX MONTHS ENDED
                                                                  JUNE 30,

                                                             2001        2000
                                                          ----------  ----------
Cash flows from operating activities:
  Net income                                               $418,374    $461,232
  Adjustments to reconcile net income to net cash provided
      by operating activities:
    Provision for doubtful accounts                          20,771      10,606
    Provision for losses on real estate held for sale             0       5,028
    Early withdrawal penalty credited to income              (1,539)     (2,595)
    (Increase) decrease in accrued interest and advances   (157,839)    (84,059)
    Increase (decrease) in accounts payable and accrued
     expenses                                                     0     (24,199)
    Increase (decrease) in deferred interest on loans             0    (115,709)
    Increase (decrease) in prepaid expenses                       0           0
                                                         -----------  ----------

     Net cash provided by operating activities              279,767     250,304
                                                          ----------  ----------

Cash flows from investing activities:
    Principal collected on loans                          4,932,790   2,438,159
    Loans made                                           (1,376,306) (3,820,476)
    Additions to Real Estate held for sale                 (105,767)    (29,977)
    Dispositions of Real Estate held for sale                34,260           0
    Accounts Receivable Unsecured (disbursement)               (310)     (2,477)
    Proceeds from unsecured Accounts Receivable               7,500       1,787
                                                         -----------  ----------

     Net cash provided by (used in) investing activities  3,492,167  (1,412,984)
                                                         -----------  ----------

Cash flows from financing activities:
  Net increase (decrease) in note payable-bank           (2,960,000)  2,300,000
  Formation Loan collections                                 40,563      38,243
  Partners withdrawals                                     (815,840)   (939,797)
                                                         -----------  ----------

     Net cash provided by (used in) financing activities (3,735,277)  1,398,446
                                                         -----------  ----------

Net increase in cash                                         36,657     235,766

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

Cash - end of period                                       $305,657    $624,536
                                                          ==========  ==========


Interest paid                                               $92,199     $83,867


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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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. 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 June 30, 2001, $882,701 including $150,635 in early withdrawal penalties
had been repaid leaving a balance of $31,668.  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.

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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
simple 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 June 30, 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 June 30, 2001, the
average  loan to  appraised  value  of  security  at the  time  the  loans  were
consummated  was  62.39%.  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.

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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 June 30, 2001 and December 31, 2000:

                                                        June 30,    December 31,
                                                         2001          2000
                                                     ------------   ------------

Costs of properties                                   $1,052,522     $1,258,966
Reduction in value                                      (384,458)      (442,872)
                                                     ------------    -----------
Fair value reflected in financial statements            $668,064       $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  debts 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 June 30, 2001 and December 31, 2000 was as follows:

                                            June 30,                December 31,
                                             2001                       2000
                                     ---------------            ----------------

Impaired loans                              $137,175                    $137,175
Unspecified loans                            590,383                     569,612
Accounts receivable, unsecured               143,761                     143,761
                                     ---------------            ----------------
                                            $871,319                    $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.

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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 six months through June 30,
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 $39,826, $110,713, $127,440 and $128,493
were  incurred for the six months  ended June 30, 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 $18,968,  $38,400, $44,524 and $16,141
during the six months  ended June 30,  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.

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

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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 June 30, 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  $181,231  at  June  30,  2001  ("Collection  Suits").  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  (the
"Action").

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


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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 June 30,
2001 and December 31, 2000 were $540,000 and  $3,500,000  respectively,  and the
interest  rate was 7.00%  (6.75%  prime + .25%) at June 30,  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:

                                              June 30,             December 31,
                                               2001                   2000
                                           -----------             -------------
Net assets - Partners' Capital per
  financial statements                      $9,747,866               $10,106,308
Formation Loan receivable                       31,668                    75,612
Allowance for doubtful accounts                871,319                   850,548
                                           -----------               -----------
Net assets tax basis                       $10,650,853               $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  $9,457,350  at June 30,
2001.  The fair value of these  loans of  $9,431,647  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.

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The loans are secured by recorded deeds of trust.  At June 30, 2001,  there
were 36 loans outstanding with the following characteristics:

Number of loans outstanding                                                  36
Total loans outstanding                                              $9,457,350

Average loan outstanding                                               $262,704
Average loan as percent of total                                          2.78%

Largest loan outstanding                                             $1,251,090
Largest loan as percent of total                                         13.23%

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

Largest percentage of loans in one county                                29.49%
Average loan to appraised value of security at time loan was
   consummated                                                           62.39%

Number of loans in foreclosure                                                1


The following categories of loans are pertinent at June 30, 2001, and 2000:

                                         June 30,                December 31,
                                           2001                      2000
                                      --------------           --------------

First Trust Deeds                         $6,050,967               $8,720,986
Second Trust Deeds                         3,209,485                4,000,140
Third Trust Deeds                            196,898                   73,171
                                      --------------           --------------
  Total loans                              9,457,350               12,794,297
Prior liens due other lenders              7,675,612                8,761,363
                                      --------------           --------------

  Total debt                             $17,132,962              $21,555,660
                                     ===============           ==============


Appraised property value at
    time of loan                         $27,462,242              $35,518,467
                                     ===============           ==============


Total investments as a percent
    of appraisals                             62.39%                   60.69%
                                     ===============           ==============


Investments by Type of Property:
  Owner occupied homes                      $254,344                 $218,942
  Non-Owner occupied homes                   985,467                1,644,636
  Apartments                               1,859,815                2,590,022
  Commercial                               6,357,724                8,340,697
                                     ---------------           --------------
                                          $9,457,350              $12,794,297
                                     ===============           ==============

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2001

Scheduled maturity dates of loans are as follows:

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

                       2001                        $6,400,443
                       2002                         1,426,918
                       2003                           557,083
                       2004                           129,043
                       2005                           513,657
                    Thereafter                        430,206
                                           -------------------
                       Total                       $9,457,350
                                           ===================

     The scheduled maturities for 2001 above include approximately $2,794,284 in
eleven  loans,  which are past  maturity  at June 30,  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 June 30, 2001 of $305,657 was in one bank with interest
bearing balances totaling $251,107.  The balances exceeded FDIC insurance limits
(up to  $100,000  per  bank) by  $205,657.  The  Partnership's  bank is the same
financial  institution  that has provided the  Partnership  with the  $3,500,000
limit line of credit.  At June 30, 2001,  draw down  against  this  facility was
$540,000.  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.



            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 June
30, 2001, Partners' Capital totaled $9,747,866.

     At June 30, 2001, the Partnership  loans  outstanding  totaled  $9,457,350.
This  represents  a decline  of  $3,336,947  from the  December  31,  2000 loans
balance. This reduction in loans outstanding as of June 30, 2001 was chiefly due
to loan  repayments  and loan  pay-offs  being used to fund  withdrawals  to the
Limited Partners of $811,656 during six months through June 30, 2001 and partial
reduction  in line  of  credit  balance  by  $2,960,000.  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 June 30,  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  had  been  rising  due
primarily  to  economic  forces  and by the  Federal  Reserve  raising  its core
interest  rates.  However,  since  January  2001,  the Federal  Reserve has been
dramatically  cutting its core interest rates with six successive cuts,  ranging
from .25% to .50%. The latest cut being June 27, 2001, which reduced the Federal
Funds  Rate to 3.75%.  The  effect of the cuts has  greatly  reduced  short-term
interest  rates and to a lesser extent reduced  long-term  interest  rates.  New
loans  will be  originated  at then  existing  interest  rates.  In the  future,
interest  rates  likely  will  change  from their  current  levels.  The General
Partners  cannot at this time predict at what levels  interest  rates will be in
the future.  Although the rates charged by the Partnership are influenced by the
level of interest  rates in the market,  the General  Partners  anticipate  that
rates charged by the  Partnership  to its borrowers  will be somewhat lower than
the first half of 2001. The General  Partners  anticipate that new loans will be
placed at rates  approximately 1% lower than similar loans during the first half
of 2001. The lowering of interest rates has encouraged those borrowers that hold
higher interest rate loans than those currently available to seek refinancing of
their  existing  obligations  to  take  advantage  of  these  lower  rates.  The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage  of these  lower  rates.  However,  demand  for loans  from  qualified
borrowers  continues to be strong and as prepayments occur, we expect to replace
these  loans with loans at  somewhat  lower  interest  rates.  At this time,  we
believe that the average loan portfolio interest rate will decline approximately
 .25% to .50% over the remainder of the year. Nevertheless,  based upon the rates
expected in connection with the existing loans,  and anticipated  interest rates
to be charged by the  Partnership  and the  General  Partners'  experience,  the
General  Partners  anticipate that the annualized yield will range between eight
and eight and one half percent (8.00% - 8.50%) for the remainder of 2001.

     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 June 30, 2001,  the prime rate was 6.75% and
the line of credit rate was 7.00%.  As of June 30, 2001,  December 31, 2000, and
December  31,  1999,  the  balances  were  $540,000,  $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 June 30, 2001, the
Partnership is current with its interest payments on the line of credit. For the
years ended December 31, 1998,  1999, 2000 and six months through June 30, 2001,
interest paid was $170,867,  $182,350, $257,390 and $92,199,  respectively.  The
somewhat  lower  interest  paid in the first six months of 2001 is reflective of
both a lower than  average  credit  line usage and the lower  existing  interest
rate.

     The  Partnership's  income and  expenses,  accruals and  delinquencies  are
within the normal range of the General Partners' expectations,  based upon their
experience in managing similar  Partnerships  over the last  twenty-four  years.
Loan servicing fees in 1998 were $128,493,  in 1999 were $127,440,  in 2000 were
$110,713,  and six  months  through  June 30,  2001  were  $39,826.  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
six months through June 30, 2001,  management fee paid was $18,968. 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.  The  Asset  Management  Fee is  declining  as the  Partnership
distributes Partners Capital.

     All other expenses  fluctuated in a very close range except for Interest on
Note  Payable - bank and  Provision  for  Doubtful  Accounts  and losses on Real
Estate Acquired Through  Foreclosure each discussed elsewhere in this Management
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations.
Borrower  foreclosures,  as set forth under Results of Operations,  are a normal
aspect of Partnership  operations and the General Partners  anticipate that they
will not have a material effect on liquidity. As of June 30, 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 $20,771,  as provisions  for doubtful  accounts for the years ended December
31, 1998,  1999, 2000, and six months through June 30, 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 to $20,771
through June 30, 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 June
30, 2001,  approximately 60%,  ($5,665,580) 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.

     The United States economy has slowed from the robust Gross Domestic Product
growth  levels of 4.2% in 1999 and 5.0% in 2000 to a growth rate of 1.2% for the
1st quarter of 2001.  In response  to the slow down in  economic  activity,  the
Federal  Reserve has been acting  primarily  through  reductions  in the Federal
Funds rates to stimulate the United  States  economy.  Their  interest rate cuts
have lowered the Federal Funds rate from 6.5% to 3.75% or 42% over the course of
the first half of 2001.

     Like the rest of the nation,  the San  Francisco Bay Area has also felt the
slow down in economic  growth.  The  technology  companies of Silicon Valley and
other  industries  are feeling  the  effects of the overall US economy  slowdown
which include  lower  earnings,  losses and layoffs.  This is having some effect
upon the  Partnership  loan  portfolio and the value of real estate which is the
security behind the Partnership  loan  portfolio.  The Northern  California real
estate  market  and   particularly  the  San  Francisco  Bay  Area  real  estate
marketplace  experienced increases in values of over 10% in 1999 and in 2000. In
the residential  marketplace throughout 2000, offers for residential real estate
were often at or above asking price.  The  residential  market has slowed and is
returning to a more normal  market,  wherein  buyers and sellers  negotiate  the
terms of a sale without undue influence from other buyers desiring the property.
This has  resulted  in  longer  listing  and  transaction  times.  According  to
DataQuick Information Systems,  April 2001, the number of home sales for the San
Francisco  Bay Area were 15.8%  lower than the  previous  April,  yet the median
sales price increased 9.4% to $394,000  during this same period.  In our opinion
mid priced and lower end homes have  continued  to  increase  in value while the
high-end homes have begun to decrease in value.  The  Partnership may experience
higher  delinquencies due to layoffs from borrowers who need to sell their homes
in order to repay their debt not  anticipating  currently  existing  transaction
times to sell a home or the lower prices of higher end homes.

     For  commercial  properties  vacancy  rates  continued to increase as space
absorption has slowed and sub lease space has been put on the market.  According
to Grubb and Ellis vacancy in Class A and B space in San  Francisco  reached 7.7
percent at the end of the first quarter of 2001.  Vacancy rates for other cities
in the San Francisco Bay Area followed a similar  trend.  According to Grubb and
Ellis , one indication that the bottom of the market may be reached soon is that
the rate of increase in the vacancy rate has slowed.  After increasing by nearly
2 percentage points a month during the first quarter, the vacancy rate increased
at less than 1 percent a month during the second quarter.  The best news is that
according  to Grubb and Ellis sales  volumes are on par with last year and sales
prices per square foot have remained steady because banks never underwrote deals
at the rates at the peak of the  market.  However,  Grubb  and  Ellis  predict a
slowdown  in  investments  until there is comfort  that rents and  vacancy  have
bottomed. The Partnership may experience greater loan delinquencies if landlords
lose their tenants or are unable to rent vacant space.

     The  Partnership had an average loan to value ratio computed as of the date
the loan was made of 62.39%,  as of June 30, 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 unknown.  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 $47,052,  $38,238, $9,039 and
$ 0, for the six months  ended June 30,  2001 and the years ended  December  31,
2000,  1999,  and 1998,  respectively,  has been invested with that of two other
partnerships. In order to pursue development options, rezoning of the property's
existing residential zoning classification will be required.  The Partnership is
continuing to explore  remediation  options  available to mitigate the pesticide
contamination,  which affects the property. This pesticide contamination appears
to be the  result  of  agricultural  operations  by prior  owners.  The  General
Partners  do not  believe  at  this  time  that  remediation  of  the  pesticide
contaminants  will have a material adverse effect on the financial  condition of
the Partnership.

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

     At the time of subscription to the  Partnership,  Limited  Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended December 31, 1998,  1999,  2000, and six months through June 30, 2001, the
Partnership made  distributions of earnings to Limited Partners after allocation
of   syndication   costs  of  $456,358,   $490,841,   $454,386,   and  $195,064,
respectively.  Distribution of Earnings to Limited  Partners after allocation of
syndication  costs for the years ended  December  31, 1998,  1999,  2000 and six
months  through  June 30, 2001 to Limited  Partners'  capital  accounts  and not
withdrawn was $381,747,  $409,644, $436,759, and $219,126,  respectively.  As of
December  31 1998,  1999,  2000 and six  months  ended  June 30,  2001,  Limited
Partners electing to withdraw earnings  represented 53%, 54%, 49% and 47% 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
six months through June 30, 2001, $381,458, $231,025, $179,343, and $61,504 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 six months through June 30, 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 six
months through June 30, 2001, $1,019,017,  $1,205,917, $1,250,291, and $560,008,
respectively, were liquidated by Limited Partners who have elected a liquidation
program over a period of five years or longer.  This  ability to withdraw  after
five  years by Limited  Partners  has the effect of  providing  Limited  Partner
liquidity. The General Partners expect a portion of the Limited Partners to take
advantage of this provision.  This has the anticipated effect of the Partnership
growing,  primarily through  reinvestment of earnings in years one through five.
The  General  Partners  expect to see  increasing  numbers  of  Limited  Partner
withdrawals  in years five  through  eleven,  after which time the bulk of those
Limited  Partners who have sought  withdrawal have been  liquidated.  After year
eleven,  liquidation  generally subsides and the Partnership capital again tends
to increase.

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through  year  eleven  (2000)  and six  months  through  June 30,  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

    Six months through
       June 30, 2001              $195,064         *$621,512            $816,576

* 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. This Partnership
originally  raised  $11,998,359 in Limited Partner Capital  contributions and at
June 30, 2001 had $9,735,888 in remaining Limited Partner Capital.

     Over the last  few  years,  Russ has been  passing  along  his  duties  and
responsibilities  to the remaining General Partners.  These 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.

     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").

     The  accounting  firm of  Caporicci,  Cropper & Larson,  LLP  ("CCL"),  the
successor  in  interest  to  Parodi  &  Cropper,  CPA's,  was  retained  as  the
Partnership's  independent  public  accountants  when the Partnership  commenced
operations in 1993.  Bruce Cropper and John Cropper,  formerly  partners at CCL,
were the Partnership's principal contacts at CCL. Bruce Cropper and John Cropper
have been  performing  audit and  accounting  services  for the  benefit  of the
Partnership's General Partners and their affiliates for over 18 years. Effective
as of December 31, 2000, CCL resigned from its  engagement as the  Partnership's
independent  public  accountants due to the withdrawal of Bruce Cropper and John
Cropper from the CCL  partnership,  making it necessary for the  Partnership  to
retain new  independent  public  accountants.  Bruce  Cropper  and John  Cropper
subsequently  joined the accounting firm of Armanino McKenna,  LLP ("Armanino").
Based upon the  long-standing  relationship  between the  Partnership  and Bruce
Cropper and John Cropper,  the Partnership's  General Partner determined that it
was  in  the  best  interest  of  the  Partnership  to  retain  Armanino  as the
Partnership's  independent public accountants,  effective as of January 1, 2001.
The  Partnership  believes,  and has been  advised by Mr. John  Cropper  that he
concurs,  that for the two fiscal years ended December 31, 2000, the Partnership
and CCL, as well as  Armanino,  did not have any  disagreement  on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which disagreement,  if not resolved to the satisfaction of
CCL,  would have caused CCL to make  reference in connection  with its report on
the   Partnership's   financial   statements  to  the  subject   matter  of  the
disagreement.  The report of CCL on the Partnership's  financial  statements for
the years ending  December 31, 1998 and December 31, 1999, as well as the report
of Armanino for the year ending  December  31, 2000,  did not contain an adverse
opinion or  disclaimer  of  opinion,  and was not  qualified  or  modified as to
uncertainty,  audit scope or accounting  principles.  During that period,  there
were  no  "reportable  events"  within  the  meaning  of  Item  304(a)(1)(v)  of
Regulation S-K promulgated under the Securities Act of 1933.



       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 June 30, 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        Loan Servicing Fee for servicing loan. . . . . . .    $39,826
    Mortgage Corp.

General Partners   Asset Management Fee for managing assets. . . . . .   $18,968
&/or Affiliates

General Partners   1% interest in profits. . . . . . . . . . . . . . .    $4,184

General Partners   Portion of early withdrawal penalties applied to reduce
 &/or Affiliates   Formation Loan. . . . . . . . . . . . . . . . . . .    $3,381

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

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

Redwood Mortgage   Processing and Escrow Fees for services in connection with
Corp.              notary, document preparation, credit investigation,
                   and escrow fees payable by the borrowers and not
                   by the Partnership. . . . . . . . . . . . . . . . .    $1,703


Gymno Corporation
Inc.               Reconveyance Fee. . . . . . . . . . . . . . . . . .      $718

     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. . . . . . . .  . . . . . . . . . . . . . . . . . . .$20,379



                   LOAN PORTFOLIO SUMMARY AS OF JUNE 30, 2001

                             Partnership Highlights


Loan to Value Ratios

First Trust Deeds                                                $6,050,967.28
Appraised Value of Properties *                                  10,747,643.00
   Total Investment as a % of Appraised Value                           56.30%

First Trust Deed Loans                                           $6,050,967.28
Second Trust Deed Loans                                           3,209,485.31
Third Trust Deed Loans                                              196,897.57
                                                              ------------------
                                                                 $9,457,350.16

First Trust Deeds due other Lenders                               6,197,516.00
Second Trust Deeds due other Lenders                              1,478,096.00
                                                              ------------------

Total Debt                                                      $17,132,962.16
                                                              ==================

   Appraised Property Value *                                   $27,462,242.00
   Total Investment as a % of Appraised Value                           62.39%

Number of Loans Outstanding                                                 36

Average Investment                                                  262,704.17
Average Investment as a % of total loans                                 2.78%
Largest Investment Outstanding                                    1,251,089.72
Largest Investment as a % of total loans                                13.23%

Loans as a Percentage of Total Loans

First Trust Deed Loans                                                  63.98%
Second Trust Deed Loans                                                 33.94%
Third Trust Deed Loans                                                   2.08%
                                                               -----------------
Total                                                                  100.00%

    Loans by Type of Property            Amount                        Percent

Owner Occupied Homes                     $254,344.00                     2.69%
Non Owner Occupied Homes                  985,467.06                    10.42%
Apartments                              1,859,814.87                    19.67%
Commercial                              6,357,724.23                    67.22%
                                       -------------                   -------
Total                                  $9,457,350.16                   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.


Diversification by County

County                                          Total loans          Percent

Stanislaus                                    $2,789,307.88           29.49%
San Francisco                                  2,736,808.34           28.94%
Contra Costa                                     966,893.55           10.22%
Santa Clara                                      897,925.80            9.50%
Alameda                                          875,616.60            9.26%
Santa Cruz                                       473,532.64            5.01%
Placer                                           330,276.31            3.49%
San Mateo                                        188,335.39            1.99%
Sacramento                                        96,716.11            1.02%
Shasta                                            78,930.45            0.84%
Sonoma                                            23,007.09            0.24%

                                         -------------------      -----------
Total                                         $9,457,350.16          100.00%
                                         ===================      ===========






                                     PART 2
                                OTHER INFORMATION




         Item 1.           Legal Proceedings

                             The Partnership is a defendant in a legal action.
                             Please refer to Note 5 of the 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 by the Partnership's
                                accountants in accounting firms. Another Form
                                8-K was filed on February 13, 2001, relating
                                to the subsequent change by the  Partnership's
                                accountants to another accounting firm. On April
                                11, 2001, the Partnership filed another Form 8-K
                                regarding D. RussellBurwell's retirement as
                                more fully discussed earlier under "Management
                                Discussion and Analysis" section. An Amended
                                Form 8-K was filed on August 3, 2001 regarding
                                the Partnership's change in Accountants  as more
                                fully set forth under the section entitled
                                "Management Discussion and Analysis".






                                   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 August
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 9th day of August 2001.


Signature                                 Title                       Date


/S/ D. Russell Burwell
-----------------------------------
D. Russell Burwell                     General Partner            August 9, 2001


/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell                     General Partner            August 9, 2001


/S/ D. Russell Burwell
-----------------------------------
D. Russell Burwell             President of Gymno Corporation,    August 9, 2001
                               (Principal Executive Officer);
                                Director of Gymno Corporation

/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell               Secretary/Treasurer of Gymno     August 9, 2001
                               Corporation (Principal Financial
                                   and Accounting Officer);
                                Director of Gymno Corporation