FORM 10-Q
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


For Period Ended                              September 30, 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




<PAGE>



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


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

Cash                                                  $301,083          269,000

Accounts receivable:
  Loans, secured by deeds of trust                  10,314,061       12,794,297
  Accrued Interest on loans                            578,448          363,321
  Advances on loans                                     46,326           29,825
  Accounts receivables, unsecured                    177,481            188,421
                                                 -------------     -------------
                                                    11,116,316       13,375,864
  Less allowance for doubtful accounts                     871          850,548
                                                 -------------     -------------
                                                    10,245,266       12,525,316
                                                 -------------     -------------


Real estate owned, acquired through
     foreclosure, held for sale                        987,957          816,094
                                                 -------------     -------------
                                                   $11,534,306      $13,610,410
                                                 =============     =============

                        LIABILITIES AND PARTNERS' CAPITAL


Liabilities
  Notes payable - bank line of credit               $1,902,000       $3,500,000
  Accounts payable and accrued expenses                 12,797            4,102
                                                 -------------     -------------
     Total liabilities                               1,914,797        3,504,102
                                                 -------------     -------------

Partners' capital
  Limited Partners' capital, subject to redemption
     Net of Formation Loan receivable of $0 and
     $75,612 for 2001 and 2000, respectively          9,607,531      10,094,330

  General Partners' capital                              11,978          11,978
                                                 --------------    -------------
   Total partners' capital                            9,619,509      10,106,308
                                                 --------------    -------------

   Total liabilities and partners' capital          $11,534,306     $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 NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001
                       AND SEPTEMBER 30, 2000 (unaudited)


<TABLE>
<S>                                           <C>                  <C>                  <C>                  <C>
                                              Nine Months          Nine Months          Three Months         Three Months
                                                 Ended                Ended                Ended                Ended
                                             September 30,        September 30,        September 30,        September 30,
                                                  2001                 2000                 2001                 2000
                                            -----------------    -----------------    -----------------    ----------------- --
Revenues:
  Interest on loans                                 $888,060           $1,008,205             $256,016             $355,633
  Interest on bank deposits                            3,312                1,391                  901                  429
  Late charges                                         6,478                2,657                3,394                1,553
  Other                                                3,865               14,412                1,001                4,971
                                            -----------------    -----------------    -----------------    ----------------- --
                                                     901,715            1,026,665              261,312              362,586
                                            -----------------    -----------------    -----------------    ----------------- --
Expenses:
  Loan servicing fees                                 55,195               70,472               15,369               28,469
  Interest on note payable - bank                    104,741              170,181               12,542               86,314
  Clerical costs through Redwood
      Mortgage Corp.                                  29,569               20,310                9,190                6,385
  Asset management fee                                28,176               28,565                9,208               10,065
  Provision for doubtful accounts and
     losses on real estate acquired
     through foreclosure                              20,503               14,040                 -268              - 1,594
  Professional services                               30,391               28,324               10,042                7,474
  Printing, supplies and postage                       7,681                8,198                2,148                3,245
  Other                                                4,004                3,373                    0                  259
                                            -----------------    -----------------    -----------------    ----------------- --
                                                     280,260              343,463               58,231              140,617
                                            -----------------    -----------------    -----------------    ----------------- --


Net Income                                          $621,455             $683,202             $203,081             $221,969
                                            =================    =================    =================    ================= ==

Net income:  To General Partners (1%)                 $6,215               $6,832               $2,031               $2,220
             To Limited Partners (99%)               615,240              676,370              201,050              219,749
                                            -----------------    -----------------    -----------------    ----------------- --
                                                    $621,455             $683,202             $203,081             $221,969
                                            =================    =================    =================    ================= ==

Net income per $1,000 invested by Limited Partners for entire period:
    - where income is reinvested and
       compounded                                     $63.11               $63.29               $20.61               $20.61
                                            =================    =================    =================    ================= ==

    - where partner receives income in
         monthly distributions                        $61.41               $61.58               $20.47               $20.47
                                            =================    =================    =================    ================= ==

</TABLE>



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 NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited)


                               PARTNERS' CAPITAL
              -----------------------------------------------------
                            LIMITED PARTNERS' CAPITAL
              -----------------------------------------------------
<TABLE>
<S>                                          <C>                <C>                 <C>
                                             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                       -                   12,750            - 5,803
                                              18,553
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             71,461             71,461
Net Income                                       615,240                  0            615,240
Early withdrawal penalties                       - 6,041              4,151             -1,890
Partners' withdrawals                         -1,171,610                  0         -1,171,610
                                          ---------------    ---------------     --------------

Balances at September 30, 2001                $9,607,531              $   0         $9,607,531
                                          ===============    ===============     ==============






</TABLE>


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 NINE MONTHS ENDED SEPTEMBER 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                 71,461
Net income                                          6,215                621,455
Early withdrawal penalties                              0                 -1,890
Partners' withdrawals                              -6,215             -1,177,825
                                        ------------------    ------------------

Balances at September 30, 2001                    $11,978             $9,619,509
                                        ==================    ==================










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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (unaudited)



                                                             NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                            2001          2000
                                                          ---------     --------
Cash flows from operating activities:
  Net income                                               $621,455     $683,202
  Adjustments to reconcile net income to net
     cash provided by operating activities:
    Provision for doubtful accounts                          20,503        3,940
    Provision for losses on real estate held for sale             0       10,100
    Early withdrawal penalty credited to income              -1,890       -3,816
    (Increase) decrease in accrued interest
         and advances                                      -231,628     -130,293
    Increase (decrease) in accounts payable
         and accrued expenses                                 8,695      -20,027
    Increase (decrease) in deferred interest on loans             0     -115,709
    Increase (decrease) in prepaid expenses                       0            0
                                                          ---------     --------

      Net cash provided by operating activities             417,135      427,397
                                                          ---------     --------

Cash flows from investing activities:
    Principal collected on loans                          5,750,503    4,067,472
    Loans made                                           -3,050,730   -6,140,661
    Additions to Real Estate held for sale                 -425,660      -47,089
    Dispositions of Real Estate held for sale                34,259       58,359
    Accounts Receivable Unsecured (disbursement)               -310       -1,321
    Proceeds from unsecured Accounts Receivable              11,250        3,057
                                                          ---------     --------

 Net cash provided by (used in) investing activities      2,319,312   -2,060,183
                                                          ---------    ---------

Cash flows from financing activities:
  Net increase (decrease) in note payable-bank           -1,598,000    2,700,000
  Formation Loan collections                                 71,461       57,534
  Partners withdrawals                                   -1,177,825   -1,402,268
                                                         ----------    ---------

 Net cash provided by (used in) financing activities     -2,704,364    1,355,266
                                                         ----------    ---------

Net increase/(decrease) in cash                              32,083     -277,520

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

Cash - end of period                                       $301,083     $111,250
                                                         ===========   =========


Interest paid                                              $104,741     $170,181


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


<PAGE>



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


NOTE 1 - ORGANIZATION AND GENERAL

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

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.  As loans were
identified, partners were transferred from applicant status to admitted partners
participating in loan  operations.  Each month's income is allocated to partners
based upon their  proportionate  share of 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 was unsecured and
was being repaid,  without  interest,  in ten installments of principal,  over a
ten-year  period  commencing  January 1, 1992.  At December  31,  1992,  Redwood
Mortgage  Corp.  had  borrowed  $914,369  from the  Partnership  to cover  sales
commissions  relating to  $11,998,359  limited  partner  contributions  (7.62%).
Through  September 30, 2001,  $914,369  including  $151,405 in early  withdrawal
penalties had been repaid leaving a balance of $0. The Formation Loan, which was
due from an affiliate of the General  Partners',  had been deducted from Limited
Partners'  capital in the balance sheet.  As amounts were collected from Redwood
Mortgage Corp., the deduction from capital was reduced.

B. Other Organizational and Offering Expenses

     Organizational  and  offering  expenses,   other  than  sales  commissions,
(including printing costs,  attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000  whichever was less.  The General  Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.

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


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 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  September  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 September  30,
2001, the average loan to appraised value of security at the time the loans were
consummated  was  61.20%.  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
                               SEPTEMBER 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 September 30, 2001 and December 31, 2000:

                                              September 30,         December 31,
                                                  2001                  2000
                                           ------------------     --------------

Costs of properties                             $1,372,315           $1,258,966
Reduction in value                                -384,358             -442,872
                                           ------------------     --------------
Fair value reflected in financial statements      $987,957             $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
applicable 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 September  30, 2001 and December  31, 2000 was as follows:
                                            September  30,         December 31,
                                                2001                    2000
                                          -----------------       --------------

Impaired loans                                 $137,175                $137,175
Unspecified loans                               590,114                 569,612
Accounts receivable, unsecured                  143,761                 143,761
                                          -----------------        -------------
                                               $871,050                $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
                               SEPTEMBER 30, 2001

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

     The following are commissions  and/or fees which are 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 nine months through September 30, 2001, and
years ended  December 31,  2000,  1999,  and 1998,  totaled  $84,137,  $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 $55,195, $110,713,
$127,440 and $128,493 were incurred for the nine months ended September 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 $28,176,
$38,400,  $44,524 and $16,141  during the nine months ended  September 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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 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.


<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 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 September  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  $177,481 at September 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 alleged "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.



<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 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 September
30, 2001 and December 31, 2000 were $1,902,000 and $3,500,000 respectively,  and
the interest  rate was 6.25% (6.00%  prime + .25%) at September  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:

                                                 September 30,      December 31,
                                                     2001                2000
                                               ----------------   --------------

Net assets - Partners' Capital
     per financial statements                     $9,619,509         $10,106,308
Formation Loan receivable                                  0              75,612
Allowance for doubtful accounts                      871,050             850,548
                                               ----------------   --------------
Net assets tax basis                             $10,490,559         $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 $10,314,061 at September
30, 2001. The fair value of these loans of $10,454,916  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
                               SEPTEMBER 30, 2001

NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS

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

Number of loans outstanding                                                  36
Total loans outstanding                                             $10,314,061

Average loan outstanding                                               $286,502
Average loan as percent of total                                           2.78%

Largest loan outstanding                                             $1,109,159
Largest loan as percent of total                                          10.75%

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

Largest percentage of loans in one county                                 33.17%
Average loan to appraised value of security at
   time loan was consummated                                              61.20%

Number of loans in foreclosure                                                2


     The following  categories of loans are pertinent at September 30, 2001, and
December 31, 2000:

                                                 September 30,      December 31,
                                                     2001              2000
                                               ---------------     -------------
First Trust Deeds                                 $5,233,894         $8,720,986
Second Trust Deeds                                 4,849,385          4,000,140
Third Trust Deeds                                    230,782             73,171
                                               ---------------     -------------
  Total loan                                      10,314,061         12,794,297
Prior liens due                                    9,318,486          8,761,363
                                               ---------------     -------------
  Total debt                                     $19,632,547        $21,555,660
                                               ===============     =============

Appraised property value at time of loan         $32,079,580        $35,518,467
                                               ===============     =============

Total investments as a percent of appraisals           61.20%             60.69%
                                               ===============     =============
Investments by Type of Property:
  Owner occupied homes                              $607,906           $218,942
  Non-Owner occupied homes                         1,605,481          1,644,636
  Apartments                                       1,717,884          2,590,022
  Commercial                                       6,382,790          8,340,697
                                               ---------------     -------------
                                                 $10,314,061        $12,794,297
                                               ===============     =============


<PAGE>


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

Scheduled maturity dates of loans are as follows:

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

                       2001                        $6,112,539
                       2002                         2,692,117
                       2003                           556,932
                       2004                           503,876
                       2005                            40,125
                    Thereafter                        408,472
                                           -------------------
                       Total                      $10,314,061
                                           ===================

     The scheduled maturities for 2001 above include approximately $4,940,413 in
thirteen loans, which are past maturity at September 30, 2001. Although interest
payments  on some of these  loans are  current,  $3,646,646  of these  loans was
categorized as delinquent over 90 days.

     The cash  balance at  September  30, 2001 of $301,083  was in one bank with
interest  bearing  balances  totaling  $276,322.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $201,083.  The Partnership's  bank
is the same financial  institution  that has provided the  Partnership  with the
$3,500,000  limit line of credit.  At September 30, 2001, draw down against this
facility was $1,902,000. 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
September 30, 2001, Partners' Capital totaled $9,619,509.

     At  September  30,  2001,  the  Partnership   loans   outstanding   totaled
$10,314,061.  This represents a decline of $2,480,236 from the December 31, 2000
loans balance.  This reduction in loans outstanding as of September 30, 2001 was
chiefly due to loan repayments and loan pay-offs being used to fund  withdrawals
to the Limited Partners of $1,171,610  during nine months through  September 30,
2001 and  partial  reduction  in line of credit  balance  by  $1,598,000.  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 September 30, 2001,  had credited
the Partners' accounts with income at an average  annualized  (compounded) yield
of 7.85%.

     Between the fall of 1999 to January, 2001, mortgage interest rates had been
rising due primarily to economic  forces and by the Federal  Reserve raising its
core interest rates.  However,  since January 2001, the Federal Reserve has been
dramatically cutting its core interest rates with eight successive cuts, ranging
from .25% to .50%.  The latest cut being  October 02,  2001,  which  reduced the
Federal  Funds  Rate to  2.5%.  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 September 30, 2001, the prime rate was 6.00%
and the line of credit rate was 6.25%.  As of September  30, 2001,  December 31,
2000,  and December  31, 1999,  the balances  were  $1,902,000,  $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 September 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 nine months through  September
30,  2001,  interest  paid  was  $170,867,   $182,350,  $257,390  and  $104,741,
respectively.  The somewhat lower interest paid in the first nine months of 2001
is  reflective  of both a lower  than  average  credit  line usage and the lower
existing interest rate.



<PAGE>


     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 nine months through  September 30, 2001 were $55,195.  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
nine months  through  September 30, 2001,  management  fee paid was $28,176.  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 September 30, 2001,  there
were two properties in foreclosure,  representing 1.9% of the Partnership's loan
portfolio.  In  November  one of the  loans  which had a  balance  of  $170,000,
representing  1.6% of the  Partnership  loan  portfolio,  was paid off.  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 $20,503,  as provisions  for doubtful  accounts for the years ended December
31, 1998, 1999, 2000, and nine months through September 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 $20,503
through  September  30,  2001.  These  decreases  reflect  reduced  expected REO
anticipated   losses  and  improved   collections   of  secured  and   unsecured
receivables.  If conditions  change,  the  Partnership  may again  increase it's
provisions for doubtful accounts.

     The  Partnership  makes  loans  primarily  in  Northern  California.  As of
September 30, 2001, approximately 65.61%,  ($6,766,737) 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%, and .7%
in the 1st and 2nd  quarters  to a decrease  of .4% in the 3rd  quarter of 2001.
Additionally,  the United  States was attacked by  terrorists  on September  11,
2001.  Management is deeply saddened by the loss of life and property form these
attacks and is outraged at the perpetrators.  Our thoughts and prayers go out to
all those who have been  affected by this  horrific  event.  President  Bush has
declared war on the terrorists, and the United States has begun military actions
in Afghanistan in response.  The terrorist attacks occurred on the East Coast of
the United  States far  removed  from the  operations  of the  Partnership.  The
Partnership  was  not  affected  directly  by  these  attacks.  Indirectly,  the
Partnership  will feel the effects of the attacks.  The  terrorist  attacks have
caused a further slowing of the United States  economy,  the extent of this slow
down and it's longevity is not yet known.  Key to the Partnership is the ability
of borrowers to make the payments  associated  with their  respective  loans. In
response to the slow down in the United States economy,  the Federal Reserve has
acted as noted  primarily  through  reductions  in the  Federal  Funds  rates to
stimulate the United States  economy.  Their interest rate cuts have lowered the
Federal Funds rate form 6.5% to 2.5% or 66.67% over the course of 2001.


<PAGE>


     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
now the airline industry,  the tourism industry and other industries are feeling
the effects of the overall US economy  slowdown,  which include lower  earnings,
losses and layoffs.  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 2000.

     Throughout  2000, in the San Francisco  Bay Area  residential  marketplace,
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,  August 2001,
residential  real estate sales were 14.5% lower than the previous year, with the
six San Francisco Bay Area counties experiencing  residential sales transactions
down between 7.0% and 29.1%. In spite of the lower number of  transactions,  the
median sales price for resale homes  increased by 4% from the previous year with
variances of between  minus 4.2% to a positive  16.7% for the six San  Francisco
Bay Area Counties. The General Partners believe,  mid-priced and lower-end homes
have continued to increase in value, although at a reduced rate from 2000, while
the high end  homes  have  begun to  decrease  in  value.  The  Partnership  may
experience  higher  delinquencies  due to layoffs or from  borrowers who need to
sell  their  homes  in  order to repay  their  debt not  anticipating  currently
existing  transaction times.  Significant  foreclosures and the take back of the
real estate security have not significantly  manifested  themselves as borrowers
have been able to handle their own financial affairs.

     For  commercial  properties  vacancy  rates  continued to increase as space
absorption  has  slowed  and sub lease  space has been put on the  market.  C.B.
Richard  Ellis,  reports  office  vacancy  in the San  Francisco  Bay Area at an
approximately  14% level as of the 3rd quarter 2001. County variances range from
10.1% to 17.2% of total availability.  Lease rates are down as landlords attempt
to attract tenants.  "Despite the current  conditions,  many feel the cycle will
not be as deep as those seen  during the 80's and 90's,  where new  supply,  not
decreased   demand,   drove   corrections."   The   Partnership  may  experience
delinquencies in its commercial portion of the portfolio if landlord's  existing
leases  expire or space  becomes  available  through  business  failures  or the
completion of building renovations.

     The  Partnership had an average loan to value ratio computed as of the date
the loan was made of 61.20%,  as of September 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 $47,363,  $38,238, $9,039 and
$ 0, for the nine months ended  September 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


<PAGE>


     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 nine months through September 30, 2001,
the  Partnership  made  distributions  of  earnings  to Limited  Partners  after
allocation of syndication costs of $456,358,  $490,841,  $454,386, and $284,446,
respectively.  Distribution of Earnings to Limited  Partners after allocation of
syndication  costs for the years ended  December 31, 1998,  1999,  2000 and nine
months through  September 30, 2001 to Limited Partners' capital accounts and not
withdrawn was $381,747,  $409,644, $436,759, and $330,794,  respectively.  As of
December 31 1998,  1999, 2000 and nine months ended September 30, 2001,  Limited
Partners electing to withdraw earnings  represented 53%, 54%, 49% and 45% 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
nine months  through  September  30, 2001,  $381,458,  $231,025,  $179,343,  and
$75,512 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 nine months through  September 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 nine
months  through  September 30, 2001,  $1,019,017,  $1,205,917,  $1,250,291,  and
$817,693,  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 nine months  through  September 30, 2001 is shown
hereunder;  which confirms the General Partners theory on the liquidation habits
of the Limited Partners:




<PAGE>


                                            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

    Nine months through
    September 30, 2001      $284,446            *$893,205          $1,177,651

* 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 retired
effective  September 30, 2001. "Russ" 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 September 30,
2001 had $9,607,531 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 Redwood  Mortgage  Corp.,  are well  prepared for
Russ' departure and look forward to emulating the steady consistent returns that
the Limited Partners have enjoyed during Russ' tenure.

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


<PAGE>


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




<PAGE>


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 nine months ended  September  30,
2001. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.

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

I.  Redwood Mortgage        Loan Servicing Fee
    Corp.                       for servicing  loan . . . . . . . . . .  $55,195

General Partners            Asset Management Fee for
   &/or Affiliates              managing assets . . . . . . . . . . . .  $28,176


General Partners            1% interest in profits . . . . . . . . . . .  $6,215

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


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

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

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 . . . . . . . . . . . . . . . . . . .    $2,714

Gymno Corporation
Inc.                        Reconveyance  Fee . . . . . . . . . . . . .     $903

     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. . . . . . . . . . . . . . . . . . . . . . . . . .   $29,569




<PAGE>


               LOAN PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 2001

                             Partnership Highlights


Loan to Value Ratios

First Trust Deeds                                                $5,233,894.17
Appraised Value of Properties *                                   9,469,695.00
   Total Investment as a % of Appraised Value                           55.27%

First Trust Deed Loans                                           $5,233,894.17
Second Trust Deed Loans                                           4,849,385.10
Third Trust Deed Loans                                              230,781.39
                                                             ------------------
                                                                $10,314,060.66

First Trust Deeds due other Lenders                               7,840,390.00
Second Trust Deeds due other Lenders                              1,478,096.00
                                                             ------------------

Total Debt                                                      $19,632,546.66
                                                             ==================

   Appraised Property Value *                                   $32,079,580.00
   Total Investment as a % of Appraised Value                           61.20%

Number of Loans Outstanding                                                 36

Average Investment                                                  286,501.68
Average Investment as a % of total loans                                 2.78%
Largest Investment Outstanding                                    1,109,158.69
Largest Investment as a % of total loans                                10.75%

Loans as a Percentage of Total Loans

First Trust Deed Loans                                                  50.74%
Second Trust Deed Loans                                                 47.02%
Third Trust Deed Loans                                                   2.24%
                                                              -----------------
Total                                                                  100.00%

    Loans by Type of Property            Amount                   Percent

Owner Occupied Homes                     $607,906.42                     5.89%
Non Owner Occupied Homes                1,605,480.72                    15.57%
Apartments                              1,717,883.84                    16.66%
Commercial                              6,382,789.68                    61.88%
                                                              -----------------
                                    -----------------
Total                                 $10,314,060.66                   100.00%

Statement of Conditions of Loans
         Number of loans in Foreclosure              2



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



<PAGE>




Diversification by County

County                                          Total loans          Percent

San Francisco                                 $3,421,167.79           33.17%
Stanislaus                                     2,789,213.33           27.04%
Santa Clara                                    1,336,675.28           12.96%
Contra Costa                                     966,630.50            9.37%
Alameda                                          820,668.60            7.96%
Santa Cruz                                       375,000.00            3.64%
San Mateo                                        221,595.15            2.15%
Placer                                           184,608.82            1.79%
Sacramento                                        96,716.11             .94%
Shasta                                            78,851.91             .76%
Sonoma                                            22,933.17             .22%

                                         -------------------      -----------
Total                                        $10,314,060.66          100.00%
                                         ===================      ===========







<PAGE>





                                     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. A 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. Russell
                                    Burwell'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.






<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 13th day of
November, 2001.

REDWOOD MORTGAGE INVESTORS VII


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 13th day of November 2001.


Signature                                 Title                       Date


/S/ Michael R. Burwell
------------------------
Michael R. Burwell                   General Partner           November 13, 2001


/S/ D. Russell Burwell
------------------------
D. Russell Burwell         President of Gymno Corporation,     November 13, 2001
                            (Principal Executive Officer);
                            Director of Gymno Corporation

/S/ Michael R. Burwell
-----------------------
Michael R. Burwell         Secretary/Treasurer of Gymno        November 13, 2001
                          Corporation (Principal Financial
                               and Accounting Officer);
                           Director of Gymno Corporation