UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

       (Mark One)
       [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended March 31, 2005

                                       OR

       [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________

                        Commission File Number: 33-30427

                         REDWOOD MORTGAGE INVESTORS VII,
                        a California Limited Partnership
             (Exact name of registrant as specified in its charter)

               California                                     94-3094928
(State or other jurisdiction of incorporation              (I.R.S. Employer
              or organization)                            Identification No.)


900 Veterans Blvd., Suite 500, Redwood City, CA               94063-1743
   (Address of principal executive offices)                   (Zip Code)

                                 (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 such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes            XX             No
          --------------             --------------

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes                           No          XX
          --------------             -------------

                                       1
<PAGE>

Part I - Item 1.    FINANCIAL STATEMENTS

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                MARCH 31, 2005 and DECEMBER 31, 2004 (unaudited)


                                     ASSETS
<TABLE>
<S>                                                                        <C>                <C>
                                                                           March 30,          December 31,
                                                                             2005                2004
                                                                        ---------------     ---------------

Cash and cash equivalents                                                $     922,113       $     346,393
                                                                        ---------------     ---------------

Loans
   Loans, secured by deeds of trust                                          6,044,164           7,388,478
   Loans, unsecured, net discount of $102,061 and $107,433 for
     March 31, 2005 and December 31, 2004, respectively                        240,275             238,484
                                                                        ---------------     ---------------
                                                                             6,284,439           7,626,962
   Allowance for loan losses                                                 (735,613)           (745,476)
                                                                        ---------------     ---------------
         Net loans                                                           5,548,826           6,881,486

Interest and other receivables
   Accrued interest and late fees                                              133,263             190,105
   Advances on loans                                                             1,445               8,188
   Prepaid expenses                                                              1,536                   -
                                                                        ---------------     ---------------
         Total interest and other receivables                                  136,244             198,293
                                                                        ---------------     ---------------

Investment in limited liability company                                        841,962                   -
Real estate held for sale, net                                               1,785,462           1,782,182
                                                                        ---------------     ---------------

         Total assets                                                    $   9,234,607       $   9,208,354
                                                                        ===============     ===============


                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities

  Accounts payable                                                       $      12,424       $       4,951
  Payable to affiliate                                                          75,551              74,987
                                                                        ---------------     ---------------
         Total liabilities                                                      87,975              79,938
                                                                        ---------------     ---------------

Partners' capital
   Limited partners' capital, subject to redemption                          9,134,659           9,116,443
   General partners' capital                                                    11,973              11,973
                                                                        ---------------     ---------------
         Total partners' capital                                             9,146,632           9,128,416
                                                                        ---------------     ---------------

         Total liabilities and partners' capital                         $   9,234,607       $   9,208,354
                                                                        ===============     ===============
</TABLE>

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

                                       2
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
         FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004 (unaudited)

<TABLE>
<S>   <C>                                                                     <C>              <C>
                                                                                THREE MONTHS ENDED
                                                                                    MARCH 31,
                                                                          -------------------------------

                                                                              2005             2004
                                                                          -------------    -------------
      Revenues
         Interest on loans                                                 $   171,258      $   203,219
         Interest - interest bearing accounts                                      195            1,343
         Late fees                                                               1,924            4,598
         Other                                                                   1,112            8,494
                                                                          -------------    -------------
                                                                               174,489          217,654
                                                                          -------------    -------------
      Expenses
         Mortgage servicing fees                                                17,704           20,131
         Interest expense                                                            -              732
         Clerical costs through Redwood Mortgage Corp.                           3,843            4,818
         Asset management fees                                                   8,583            8,489
         Provisions for (recovery of) losses on loans and
           real estate held for sale                                           (9,863)           11,355
         Professional services                                                  11,179           20,963
         Printing, supplies and postage                                          1,556            2,290
         Other                                                                   2,391            8,780
                                                                          -------------    -------------
                                                                                35,393           77,558
                                                                          -------------    -------------
      Net income                                                           $   139,096      $   140,096
                                                                          =============    =============

      Net income:    to general partners (1%)                                    1,391            1,401
                     to limited partners (99%)                                 137,705          138,695
                                                                          -------------    -------------
                                                                           $   139,096      $   140,096
                                                                          =============    =============

      Net income per $1,000 invested by limited
        partners for entire period

            -where income is compounded and retained                       $        15      $        15
                                                                          =============    =============

            -where partner receives income in monthly
               distributions                                               $        15      $        15
                                                                          =============    =============
</TABLE>


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


                                       3
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS
         FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004 (unaudited)

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

                                                                               THREE MONTHS ENDED MARCH 31,
                                                                             ---------------------------------

                                                                                 2005               2004
                                                                             --------------     --------------
      Cash flows from operating activities
        Net income                                                            $    139,096       $    140,096
        Adjustments to reconcile net income to net cash provided
           by operating activities
              Provisions for (recovery of) losses on loans and real estate         (9,863)             11,355
              Early withdrawal penalty credited to income                            (960)              (380)
              Amortization of discount on unsecured loans                          (5,372)            (5,371)
              Change in operating assets and liabilities
                Accrued interest and advances on loans                               3,112           (48,238)
                Accounts payable and other liabilities                               8,037             11,062
                Prepaid expenses                                                   (1,536)            (3,586)
                                                                             --------------     --------------

      Net cash provided by operating activities                                    132,514            104,938
                                                                             --------------     --------------

      Cash flows from investing activities
        Principal collected on loans                                             1,713,086          1,465,742
        Loans originated                                                       (1,145,000)          (648,741)
        Payments on real estate held for sale                                      (3,280)                  -
        Investment in limited liability company                                    (5,261)                  -
        Proceeds from unsecured loans                                                3,580              4,457
                                                                             --------------     --------------

      Net cash provided by investing activities                                    563,125            821,458
                                                                             --------------     --------------

      Cash flows from financing activities
        Net decrease in line of credit                                                   -          (200,000)
        Partners' withdrawals                                                    (119,919)          (116,826)
                                                                             --------------     --------------
      Net cash used in financing activities                                      (119,919)          (316,826)
                                                                             --------------     --------------

      Net increase in cash and cash equivalents                                    575,720            609,570

      Cash and cash equivalents - beginning of year                                346,393            321,114
                                                                             --------------     --------------

      Cash and cash equivalents - end of period                                    922,113            930,684
                                                                             ==============     ==============

      Cash payments for interest                                              $          -       $        732
                                                                             ==============     ==============
</TABLE>


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

                                       4
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2005 (unaudited)


NOTE 1 - GENERAL

     In the  opinion of the  management  of the  Partnership,  the  accompanying
unaudited  financial  statements contain all adjustments,  consisting of normal,
recurring  adjustments,  necessary to present  fairly the financial  information
included therein.  These financial statements should be read in conjunction with
the audited financial statements included in the Partnership's Form 10-K for the
fiscal year ended  December  31,  2004 filed with the  Securities  and  Exchange
Commission. The results of operations for the three month period ended March 31,
2005 are not necessarily  indicative of the operating results to be expected for
the full year.


NOTE 2 - Summary of Significant Accounting Policies

Loans, secured by deeds of trust

     At March 31, 2005 and December 31, 2004 there was one loan  categorized  as
impaired  by the  Partnership  in the  total  aggregate  amount of  $96,716.  In
addition,  the impaired loan had accrued  interest and advances  totaling $5,621
and $7,841 at March 31, 2005 and December 31, 2004, respectively. In 2004 it was
determined  that a reduction  in carrying  value was no longer  required on this
loan. The average  recorded  investment in the impaired loan was $96,716 for the
three month period ended March 31, 2005 and the year ended December 31, 2004.

     As of March 31,  2005 the  Partnership  had a combined  total of four loans
with  outstanding  principal  balances of $271,323  that were either past due 90
days or more in  interest  payments  and/or  past  maturity.  These  four  loans
included  two loans  totaling  $64,819  that were  past  maturity  and two loans
totaling $206,504 that were past due 90 days or more in interest payments.  This
compares to a combined total of five loans totaling  $1,049,730 that were either
past  due 90 days or  more in  interest  payments  and/or  past  maturity  as of
December 31, 2004.  These five loans  included two loans  totaling  $64,850 that
were past maturity and three loans totaling  $984,880 that were past due 90 days
or more in  interest  payments.  A past  maturity  loan is a loan in  which  the
principal and/or any accrued  interest is due and payable,  but the borrower has
failed  to  make  such  payment  of  principal  and/or  accrued  interest.   The
Partnership  considers  one of the March 31, 2005 past due 90 days or more loans
to be impaired.  In the opinion of management,  the remaining  delinquent and/or
past maturity loans have sufficient  collateral to cover the amount  outstanding
to the Partnership and are still accruing interest on these loans.

Allowance for loan losses

     The  composition  of the allowance for loan losses as of March 31, 2005 and
December 31, 2004 was as follows:

                                          March 31,         December 31,
                                            2005               2004
                                       ---------------    ---------------

      Specified loans                   $     290,464      $     290,464
      General                                 221,580            231,443
      Unsecured loans                         223,569            223,569
                                       ---------------    ---------------
                                        $     735,613      $     745,476
                                       ===============    ===============


                                       5
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2005 (unaudited)


NOTE 2 - Summary of Significant Accounting Policies (continued)

Allowance for loan losses (continued)

     Activity in the allowance for loan losses is as follows for the three month
period ended March 31, 2005 and the year ended December 31, 2004:

                                             March 31,         December 31,
                                               2005               2004
                                          ---------------    ---------------

      Beginning balance                    $     745,476      $     680,469
      Provision for loan losses                        -             65,007
      Recoveries                                 (9,863)                  -
                                          ---------------    ---------------
                                           $     735,613      $     745,476
                                          ===============    ===============

Investment in limited liability company

     Investment in limited  liability  company is accounted for using the equity
method.  In  February,  2005 the  Partnership  acquired an 8% interest in Larkin
Property Company, LLC (see note 5).

Income taxes

     No  provision  for federal and state income taxes (other than an $800 state
minimum  tax) is made in the  financial  statements  since  income taxes are the
obligation of the partners if and when income taxes apply.

Reclassifications

     Certain reclassifications,  not affecting previously reported net income or
total  partners'  capital,  have been made to the  previously  issued  financial
statements to conform to the current year classification.

Profits and losses

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

Management estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make  estimates  and  assumptions  about the reported  amounts of
assets and liabilities, and disclosures of contingent assets and liabilities, at
the dates of the financial  statements and the reported  amounts of revenues and
expenses during the reported periods.  Such estimates relate  principally to the
determination  of the  allowance  for loan losses,  including  the  valuation of
impaired  loans and the valuation of real estate held for sale.  Actual  results
could differ significantly from these estimates.


                                       6
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           March 31, 2005 (unaudited)


NOTE 3 - General Partners and Related Parties

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

Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and  extension of loans,  Redwood  Mortgage  Corp.,  an affiliate of the general
partners,  may collect an amount  equivalent to 12% of the loaned amount until 6
months after the termination  date of the offering.  Thereafter,  loan brokerage
commissions  (points) will be limited to an amount not to exceed 4% of the total
Partnership  assets per year.  The loan  brokerage  commissions  are paid by the
borrowers and thus, are not an expense of the Partnership.

Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid  principal  are paid to  Redwood  Mortgage  Corp.,  based  on the  unpaid
principal balance of the loan portfolio,  or such lesser amount as is reasonable
and customary in the geographic area where the property securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer  accrued.  Additional  service fees are recorded  upon the receipt of any
subsequent payments on impaired loans.

Asset management fees

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1% annually).

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.

Operating expenses

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


                                       7
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           March 31, 2005 (unaudited)


NOTE 4 - Real Estate Held for Sale

     In 1993 the  Partnership,  together  with two  other  affiliates,  acquired
through  foreclosure a parcel of land located in East Palo Alto, CA, which is on
the market for sale.  The general  partners  believe that this property is worth
considerably more than its carrying value, but it may take a considerable amount
of  additional  time to sell the  property and realize its full  potential.  The
property is unique in that it may only be utilized for  commercial or industrial
uses. Until recently,  land sales activity has been slow. Interest in land sales
for commercial sites has been improving.  As of March 31, 2005 the Partnership's
investment in this property was $62,720.

     In December 2004, the  Partnership  acquired an undeveloped  parcel of land
through a deed in lieu of foreclosure. The land is located in Stanislaus County,
California. It is comprised of three separate lots, which total approximately 14
acres.   The  parcels  are  currently  for  sale.  As  of  March  31,  2005  the
Partnership's investment in this property totaled $1,756,116,  including accrued
interest and advances,  as of the date of the acquisition.  Management  believes
that the full value of this  investment will be recovered from the eventual sale
of the  property  based  upon its  current  estimate  of the  fair  value of the
property. This property is jointly owned by two other affiliated partnerships.

     In  February,  2005  the  Partnership  acquired  another  property  through
foreclosure (see Note 5).

     The following  schedule  reflects the costs of real estate acquired through
foreclosure  and the recorded  reductions  to estimated  fair values,  including
estimated costs to sell as of March 31, 2005 and December 31, 2004:

                                              March 31,         December 31,
                                                2005               2004
                                          ----------------   ---------------
Costs of properties                        $    1,818,835     $   1,815,555
Reduction in value                               (33,373)          (33,373)
                                          ----------------   ---------------
     Real estate held for sale, net        $    1,785,462     $   1,782,182
                                          ================   ===============


NOTE 5 - INVESTMENT IN LIMITED LIABILITY COMPANY

     In February,  2005, the Partnership  acquired a multi-unit property through
foreclosure.  This  property  is  located  in an  upscale  neighborhood  in  San
Francisco.  At the time the  Partnership  took  ownership of the  property,  the
Partnership's   investment  totaled  $841,962  including  accrued  interest  and
advances. This property is jointly owned by three other affiliated Partnerships.
Upon acquisition the Partnership  transferred its interest (principally land and
building) to a limited liability company ("LLC"),  Larkin Property Company,  LLC
("Larkin"),  which is 8% owned by the Partnership,  and 92% owned by three other
affiliates. No allowance for loss has been set aside as management believes that
the fair value of the property will exceed the combined Partnerships' investment
in the property.


NOTE 6 - Bank Line of Credit

     The  Partnership has a bank line of credit secured by its loan portfolio of
up to $2,500,000 at .25% over prime.  There were no balances  outstanding  as of
March 31, 2005 and  December  31, 2004 and the  interest  rate was 6.00%  (5.75%
prime + .25%) at March 31, 2005.  This line of credit expires  December 2007 and
requires the Partnership to meet certain financial covenants. To the best of its
knowledge,  the  Partnership  was in compliance  with all loan covenants for the
three month  period  ended March 31,  2005 and for the year ended  December  31,
2004. The Partnership anticipates that the line of credit will be renewed at its
maturity.  In the event that a renewal is not  forthcoming,  the Partnership has
the  option to convert  the line of credit to a three  year term loan  beginning
December of 2007.

                                       8
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           March 31, 2005 (unaudited)


NOTE 7 - Non-Cash Transactions

     During  the  three  month  period  ended  March  31,  2005 the  Partnership
foreclosed  on a  property  (see  Note 5),  which  resulted  in an  increase  in
investment  in limited  liability  company of  $836,702  and a decrease in loans
receivable,  accrued interest, advances, and late charge receivable of $776,228,
$51,598, $5,876 and $3,000, respectively.


NOTE 8 - Fair Value of Financial Instruments

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

     Secured loans had a carrying  value of $6,044,164  and  $7,388,478 at March
31, 2005 and December 31, 2004,  respectively.  The fair value of these loans of
$6,210,337 and $7,531,668, respectively, 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 loan losses along with
accrued  interest and advances  related  thereto  should also be  considered  in
evaluating the fair value versus the carrying value.


NOTE 9 - Asset Concentrations and Characteristics

     Most loans are  secured by recorded  deeds of trust.  At March 31, 2005 and
December 31, 2004 there were 27 and 28 secured loans outstanding,  respectively,
with the following characteristics:
<TABLE>
<S>    <C>                                                                           <C>              <C>
                                                                                     March 31,        December 31,
                                                                                       2005              2004
                                                                                  --------------    --------------
       Number of secured loans outstanding                                                   27                28
       Total secured loans outstanding                                             $  6,044,164      $  7,388,478

       Average secured loan outstanding                                            $    223,858      $    263,874
       Average secured loan as percent of total secured loans                             3.70%             3.57%
       Average secured loan as percent of partners' capital                               2.45%             2.89%

       Largest secured loan outstanding                                            $    800,000      $    800,000
       Largest secured loan as percent of total secured loans                            13.24%            10.83%
       Largest secured loan as percent of partners' capital                               8.75%             8.76%
       Largest secured loan as percent of total assets                                    8.66%             8.69%

       Number of counties where security is located (all California)                         14                13

       Largest percentage of loans in one county                                         20.68%            24.64%

       Average secured loan to appraised value of security based on
           appraised values and prior liens at time loan was consummated                 69.48%            71.30%

       Number of secured loans in foreclosure status                                       None                 1
       Amount of secured loans in foreclosure status                                       None      $    776,228
</TABLE>

     Over  time,  loans  may  exceed  10%  of  the  secured  loan  portfolio  or
Partnership assets as the loan portfolio and assets of the Partnership  decrease
due to limited partner withdrawals and/or loan payoffs.

                                       9
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MARCH 31, 2005 (unaudited)


NOTE 9 - Asset Concentrations and Characteristics (continued)

     The  following  categories of secured loans were held at March 31, 2005 and
December 31, 2004:
<TABLE>
<S>    <C>                                                           <C>               <C>
                                                                     March 31,         December 31,
                                                                       2005                2004
                                                                  ---------------    ---------------

       First trust deeds                                           $   5,023,097      $   5,937,736
       Second trust deeds                                                871,223          1,450,742
       Third trust deeds                                                 149,844                  -
                                                                  ---------------    ---------------
              Total loans                                              6,044,164          7,388,478
       Prior liens due other lenders at time of loan                   3,165,893          1,944,172
                                                                  ---------------    ---------------

              Total debt                                           $   9,210,057      $   9,332,650
                                                                  ===============    ===============

       Appraised property value at time of loan                    $  13,255,827      $  13,089,113
                                                                  ---------------    ---------------

       Total secured loans as percent of appraisals                       69.48%             71.30%
                                                                  ---------------    ---------------

       Secured loans by type of property
           Owner occupied homes                                    $   2,352,280      $   2,532,045
           Non-owner occupied homes                                    1,183,950          1,961,474
           Apartments                                                    195,454            971,864
           Commercial                                                  2,312,480          1,923,095
                                                                  ---------------    ---------------

                                                                   $   6,044,164      $   7,388,478
                                                                  ===============    ===============
</TABLE>

     Scheduled  maturity  dates of  secured  loans as of March  31,  2005 are as
follows:

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

                       2005                    $      88,981
                       2006                        1,146,716
                       2007                        1,246,754
                       2008                           98,738
                       2009                        2,432,510
                    Thereafter                     1,030,465
                                              ---------------

                       Total                   $   6,044,164
                                              ===============

     The scheduled  maturities for 2005 above include  approximately  $64,819 in
two loans, which are past maturity at March 31, 2005.  Interest payments on both
of these loans were current as of March 31, 2005.


                                       10
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                           MArch 31, 2005 (unaudited)


NOTE 9 - Asset Concentrations and Characteristics (continued)

     At times, the Partnership's  cash deposits exceed federally insured limits.
Management  believes  deposits are  maintained in financially  secure  financial
institutions.

     The Partnership has a substantial amount of its loan receivable balance due
on two loans from one borrower. This borrower accounted for approximately 20.63%
of the loan balance and  approximately  16.38% of interest revenue for the three
month period ended March 31, 2005. The value of collateral  securing these loans
was less than the principal balance due under the loans.  Redwood Mortgage Corp.
has provided an indemnity to the Partnership  whereby it has agreed to indemnify
and hold harmless,  the Partnership  from any expenses or losses incurred by the
Partnership  by reason of the  Partnership's  inability to collect all principal
due under the loans after the  Partnership  has exhausted all reserves set aside
for these loans and all remedies  available to it including  foreclosure  of the
underlying collateral. Therefore, these loans are not considered impaired solely
because  the  value  of the  collateral  securing  the  loans  is less  than the
principal balance due to the Partnership.  Neither of these loans is past due 90
days or more on interest payments nor are they past maturity.


NOTE 10 - Commitments and Contingencies

Workout agreements

     The  Partnership  has negotiated a contractual  workout  agreement with one
borrower who is  delinquent in making  payments.  Under the terms of the workout
agreement  the  Partnership  is not  obligated to make any  additional  monetary
advances for the maintenance or repair of the collateral securing the loan as of
March 31, 2005. As of March 31, 2005 the  Partnership had one loan under workout
agreement totaling $96,716.

Construction loans

     The Partnership makes construction and  rehabilitation  loans which are not
fully disbursed at loan inception.  The Partnership approves the borrowers up to
a maximum loan balance;  however,  disbursements  are made  periodically  during
completion  phases of the construction or  rehabilitation or at such other times
as  required  under  the  loan  documents.  At March  31,  2005,  there  were no
undisbursed  loan  funds.  The  Partnership  does not  maintain a separate  cash
reserve to hold the undisbursed obligations, which are intended to be funded.

Legal proceedings

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


                                       11
<PAGE>

Part I - Item 2.

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP

Critical Accounting Policies.

     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 dates and income and  expenses
during  the  reporting  periods.   Such  estimates  relate  principally  to  the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established  against loans  receivable as an estimate of potential  loan losses)
including   the  accrued   interest  and  advances  that  are  estimated  to  be
unrecoverable  based on estimates of amounts to be collected  plus  estimates of
the value of the  property as  collateral  and (2) the  valuation of real estate
acquired  through  foreclosure.  At March 31, 2005, the  partnership  owned five
pieces of real property.

     Loans and the related accrued interest, late fees and advances are analyzed
on a regular basis for recoverability. Delinquencies are identified and followed
as part of the loan  system.  A provision  is made for loan losses to adjust the
allowance for loan losses to an amount  considered by management to be adequate,
with due consideration to collateral  value, to provide for unrecoverable  loans
and receivables,  including impaired loans, other loans, accrued interest,  late
fees and  advances  on loans  and other  accounts  receivable  (unsecured).  The
Partnership charges off uncollectible loans and related receivables  directly to
the  allowance  account  once it is  determined  that  the  full  amount  is not
collectible.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.  If events and or changes
in  circumstances  cause  management  to have  serious  doubts about the further
collectibility  of the  contractual  payments,  a loan  may  be  categorized  as
impaired and interest is no longer accrued.  Any subsequent payments on impaired
loans are applied to reduce the  outstanding  loan  balances  including  accrued
interest and advances.

     Recent  trends in the  economy  have been taken into  consideration  in the
aforementioned  process of arriving at the  allowance  for loan  losses.  Actual
results could vary from the aforementioned provisions for losses.

Forward Looking Statements.

     Certain  statements  in this  Report on Form 10-Q which are not  historical
facts may be considered forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and  Exchange  Act of 1934,  as  amended,  including  statements  regarding  the
Partnership's expectations,  hopes, intentions, beliefs and strategies regarding
the future.  Forward-looking  statements  include  statements  regarding  future
interest rates and economic  conditions and their effect on the  Partnership and
its assets,  future sales of properties held by the Partnership and the proceeds
from such sales,  trends in the California  real estate market,  estimates as to
the allowance for loan losses,  estimates of future limited partner  withdrawals
and 2005 annualized yield estimates.  Actual results may be materially different
from what is projected by such  forward-looking  statements.  Factors that might
cause such a difference include  unexpected  changes in economic  conditions and
interest rates, the impact of competition and competitive  pricing and downturns
in the real  estate  markets  in which  the  Partnership  has  made  loans.  All
forward-looking  statements and reasons why results may differ  included in this
Form 10-Q are made as of the date hereof,  and we assume no obligation to update
any such forward-looking statement or reason why actual results may differ.


                                       12
<PAGE>

Related Parties.

     The general  partners of the Partnership are Gymno  Corporation and Michael
R. Burwell.  Most  Partnership  business is conducted  through Redwood  Mortgage
Corp.,  an  affiliate  of the general  partner,  which  arranges,  services  and
maintains  the loan  portfolio  for the benefit of the  Partnership.  Michael R.
Burwell  is  President  and Chief  Financial  Officer of Gymno  Corporation  and
Redwood  Mortgage  Corp.  The fees  received  by the  affiliate  to the  general
partners are paid pursuant to the  Partnership  Agreement and are  determined at
the sole  discretion of the affiliate to the general  partner.  In the past, the
affiliate  to  the  general  partners  has  elected  not  to  take  the  maximum
compensation.  The  following is a list of various  Partnership  activities  for
which related parties are compensated.

     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection,  evaluation,  negotiation  and extension of loans,  Redwood  Mortgage
Corp.  may  collect an amount  equivalent  to 12% of the loaned  amount  until 6
months  after  the  termination  date  of the  offering.  Thereafter,  the  loan
brokerage  commissions (points) will be limited to an amount not to exceed 4% of
the total Partnership  assets per year. The loan brokerage  commissions are paid
by the  borrowers,  and  thus,  are  not an  expense  of the  Partnership.  Loan
brokerage  commissions  paid by the  borrowers  were $30,350 and $17,634 for the
three month periods ended March 31, 2005 and 2004, respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's  loans
is paid to Redwood  Mortgage  Corp.,  or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located.  Mortgage  servicing  fees of $17,704 and $20,131 were incurred for the
three month periods ended March 31, 2005 and 2004, respectively.

     o Asset  Management  Fees The general  partners  receive  monthly  fees for
managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net
asset  value'  (3/8 of 1% on an annual  basis).  Management  fees to the general
partners of $8,583 and $8,489 were  incurred  by the  Partnership  for the three
month periods ended March 31, 2005 and 2004, respectively.

     o Other Fees The Partnership  Agreement  provides that the general partners
may receive other fees such as  processing  and escrow,  reconveyance,  mortgage
assumption and mortgage  extension fees. Such fees are incurred by the borrowers
and are paid to the general partners. Such fees aggregated $3,034 and $2,309 for
the three month periods ended March 31, 2005 and 2004, respectively.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective Partnership  interests.  The allocation
to the general partners  (combined) shall be a total of 1%, which was $1,391 and
$1,401 for the three month periods ended March 31, 2005 and 2004, respectively.

     o Operating  Expenses An affiliate  of the  Partnership,  Redwood  Mortgage
Corp.,  is reimbursed by the  Partnership  for all operating  expenses  actually
incurred  by it on  behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
limited  partners.   Such  reimbursements  are  reflected  as  expenses  in  the
statements  of income.  Operating  expenses  totaling  $3,843 and $4,818 for the
three month periods ended March 31, 2005 and 2004, respectively, were reimbursed
to Redwood Mortgage Corp.

     o  Contributed   Capital  The  general   partners   jointly  and  severally
contributed 1/10 of 1% in cash contributions as proceeds from the offerings were
received  from the limited  partners.  As of March 31, 2005 and 2004,  a general
partner,  Gymno  Corporation,  had contributed  $11,973 as capital in accordance
with Section 4.02(a) of the Partnership Agreement.


                                       13
<PAGE>

Results of Operations - For the three months ended March 31, 2005 and 2004

     Changes in the Partnership's  operating results for the three month periods
ended March 31, 2005 versus 2004 are discussed below:

                                                        Changes during the
                                                        three months ended
                                                          March 31, 2005
                                                           versus 2004
                                                      ---------------------

  Net income increase/(decrease)                         $    (1,000)
                                                        ==============

    Revenue
     Interest on loans                                   $   (31,961)
     Interest - interest bearing accounts                     (1,148)
     Late fees                                                (2,674)
     Other income                                             (7,382)
                                                        --------------
                                                         $   (43,165)
                                                        --------------

    Expenses
     Mortgage servicing fees                             $    (2,427)
     Interest expense                                           (732)
     Clerical costs through Redwood Mortgage Corp.              (975)
     Asset management fees                                         94
     Provisions for losses on loans and real estate          (21,218)
     Professional services                                    (9,784)
     Printing, supplies and postage                             (734)
     Other                                                    (6,389)
                                                        --------------
                                                         $   (42,165)
                                                        --------------

          Net income increase/(decrease)                 $    (1,000)
                                                        ==============

     The  decrease in interest on loans of $31,961  (15.73%) for the three month
period  ended  March 31,  2005  versus  March 31,  2004 was  primarily  due to a
decrease  in the  average  loan  portfolio  outstanding  during  this  period to
$6,716,321  as of March 31,  2005 from  $7,872,326  as of March  31,  2004.  The
decrease in interest is also  attributed  to a decrease in the average  interest
rate,  which stood at 9.32% as of March 31,  2005  versus  9.77% as of March 31,
2004.

     The decrease in other income of $7,382  (86.91%) for the three month period
ended March 31, 2005 versus March 31, 2004 was primarily due to the  Partnership
no  longer  receiving  non-refundable  option  payments  on a  property  sold in
October,  2004.  During the first quarter of 2004 these option payments  totaled
$7,714.  The property  against  which the  payments  were being made was sold in
October, 2004.

     The decrease in late charges of $2,674  (58.16%) for the three month period
ended March 31, 2005 versus March 31, 2004 was  primarily  due to a reduction in
delinquent  loans to two  totaling  $206,504  as of March  31,  2005  from  five
totaling $1,049,730 as of March 31, 2004.

     The decrease in interest  bearing accounts of $1,148 (85.48%) for the three
month period ended March 31, 2005 versus March 31, 2004 was  primarily  due to a
lower average  monthly bank balance of $150,800 during the first quarter of 2005
versus $800,125 during the first quarter of 2004.

     The decrease in mortgage  servicing  fees of $2,427  (12.06%) for the three
month period ended March 31, 2005 versus March 31, 2004,  was primarily due to a
decrease in the average loan  portfolio  balance to  $6,716,321  as of March 31,
2005 from an average portfolio balance of $7,872,326 as of March 31, 2004.


                                       14
<PAGE>

     The  decrease  in  provisions  for losses on loans and real estate held for
sale of $21,218 for the three month period ended March 31, 2005 versus March 31,
2004 is due to management's  determination that the allowance for loan losses of
$735,613 as of March 31, 2005 was adequate to offset  potential losses on loans.
There were no  foreclosures  as of March 31,  2005 and none are  expected in the
foreseeable future.

     The decrease in  professional  fees of $9,784  (46.67%) for the three month
period ended March 31, 2005 versus March 31, 2004 is primarily  due to timing of
billings in 2005 compared to 2004.

     Partnership capital increased during the first three months of 2005 as both
earnings  distributions and capital  liquidations  declined below the net income
level of the  Partnership.  For the three  month  period  ended  March 31,  2005
limited  partners'  net income was $137,705  versus  earnings  distributions  of
$45,259 and capital liquidations of $74,229, which totaled $119,488.  During the
first  quarter of 2004 the  limited  partners'  net income was  $138,695  versus
earnings  distributions  of $48,198 and capital  liquidations of $67,608,  which
totaled  $115,805.  Earnings  and capital  liquidations  are a factor of limited
partner  elections  and  currently  limited  partners  seeking  liquidations  of
earnings or their capital account continues to decline.  Limited partner income,
which has  continued  to be  higher  than  earnings  distributions  and  capital
liquidations  for the past  several  quarters,  has grown the limited  partners'
capital.

     The decrease in clerical  costs of $975 (20.24%) for the three month period
ended March 31, 2005 versus  March 31, 2004 is primarily  due to lower  clerical
costs servicing the Partnership.

     The decrease in interest  expense of $732 (100%) for the three month period
ended March 31, 2005 versus March 31,  2004,  is due to non-usage of the line of
credit during the first quarter of 2005.  Average line of credit used during the
three month period ended March 31, 2005 was $0 versus an average use of $206,700
during the three month period ended March 31, 2004.

     The decrease in other expense of $6,389 (72.77%) for the three month period
ended March 31, 2005 versus March 31, 2004 was  primarily  due to a reduction in
upkeep costs for the real estate held for sale properties. The Partnership spent
$1,238  during the first  quarter of 2005 versus $7,345 during the first quarter
of 2004. The real estate held for sale property that incurred most of the upkeep
costs was sold in October, 2004.

     At March 31,  2005 there were no  outstanding  loans with filed  notices of
default.

     Redwood  Mortgage  Corp.,  an affiliate of the general  partners,  received
mortgage  brokerage  commissions  from loan  borrowers  of $30,350 for the three
month  period  ended  March 31,  2005 as compared to $17,634 for the three month
period ended March 31, 2004.  The increase is due to more loans that were funded
in the  three  month  period  ended  March 31,  2005  versus  March 31,  2004 of
$1,145,000 and $648,741, respectively.


Allowance for Losses.

     The general  partners  regularly  review the loan portfolio,  examining the
status  of  delinquencies,  the  underlying  collateral  securing  these  loans,
borrowers' payment records, etc. Based upon this information and other data, the
allowance for loan losses is increased or decreased. Borrower foreclosures are a
normal aspect of Partnership  operations.  The Partnership is not a credit based
lender and hence  while it reviews the credit  history and income of  borrowers,
and if  applicable,  the income from income  producing  properties,  the general
partners expect that we will on occasion take back real estate security.  During
2002 and 2003, the California  economy  stabilized.  During 2004 the economy and
the Northern  California Real Estate Market has strengthened.  At March 31, 2005
the  Partnership  had two loans  past due 90 days or more in  interest  payments
totaling $206,504 with no loans in foreclosure.  Of these two, one loan totaling
$96,716 was also  categorized  as impaired.  In  addition,  two loans with total
principal  balance of $64,819  were  current in interest  payments but were past
maturity as of March 31, 2005.


                                       15
<PAGE>

     Periodically, the Partnership enters into workout agreements with borrowers
who are past maturity or delinquent in their regular  payments.  The Partnership
has one impaired loan totaling $96,716 in a workout agreement with the borrower.
Typically,  a workout  agreement allows the borrower to extend the maturity date
of the  balloon  payment  and/or  allows the  borrower to make  current  monthly
payments  while  deferring  for periods of time,  past due  payments and balloon
payments  and  allows  time to pay the  loan in  full.  Workout  agreements  and
foreclosures  generally  exist  within our loan  portfolio  to greater or lesser
degrees,  depending  primarily  on the  health  of the  economy.  The  number of
foreclosures  and  workout  agreements  will  generally  rise  during  difficult
economic times and conversely  fall during good economic  times.  The number and
amount of  workout  agreements  existing  at March  31,  2005,  in  management's
opinion,  does not have a  material  effect  on our  results  of  operations  or
liquidity.  Workout  agreements are  considered  when  management  arrives at an
appropriate  allowance for loan losses,  and based on our  experience;  they are
reflective  of our loan  marketplace  segment.  In the remainder of 2005, we may
initiate  foreclosure  by filing  notices of default on delinquent  borrowers or
borrowers who become  delinquent  during the year.  Borrower  foreclosures are a
normal aspect of Partnership operations and the general partners anticipate that
they will not have a material  effect on  liquidity.  As a prudent guard against
potential losses,  the general partners have made provisions for losses on loans
and real estate held for sale through foreclosure of $768,986 at March 31, 2005.
These provisions for losses were made to guard against  collection  losses.  The
total cumulative  provision for losses as of March 31, 2005 is considered by the
general  partners to be adequate.  Because of the number of variables  involved,
the  magnitude  of the swings  possible 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.  Total provisions for
losses on loans of $735,613 and real estate held for sale of $33,373 as of March
31, 2005, is considered to be reasonable.

     As of March 31, 2005,  the  Partnership  had an average loan to value ratio
computed  based on appraised  values and prior liens as of the date the loan was
made of 69.48%.  This percentage does not account for any increases or decreases
in  property  values  since the date the loan was made,  nor does it include any
reductions  in principal  through  amortization  of payments  after the loan was
made.  This low loan to value ratio will assist the  Partnership  in  weathering
loan delinquencies and foreclosures should they eventuate.


PORTFOLIO REVIEW - For the three months ended March 31, 2005 and 2004

Loan Portfolio

     The Partnership's  loan portfolio  consists primarily of short-term (one to
five years),  fixed rate loans secured by real estate.  As of March 31, 2005 and
2004 the Partnership's  loans secured by real property collateral in the six San
Francisco Bay Area counties (San  Francisco,  San Mateo,  Santa Clara,  Alameda,
Contra Costa, and Marin) represented $3,571,744 (59.09%) and $4,684,545 (62.76%)
of the  outstanding  secured loan  portfolio.  The  remainder  of the  portfolio
represented   loans  secured  by  real  estate  located  primarily  in  Northern
California.

     As of  March  31,  2005  and  2004,  the  Partnership  held 27 and 24 loans
respectively in the following categories:
<TABLE>
<S>                                                   <C>                    <C>         <C>                    <C>
                                                             March 31, 2005                     March 31, 2004
                                                     -------------------------------    -------------------------------

Single Family Homes (1-4 units)                       $  3,536,230           58.51%      $  2,009,440           26.92%
Apartments (5+ units)                                      195,454            3.23%           985,275           13.20%
Commercial                                               2,312,480           38.26%         2,409,433           32.28%
Land                                                             -                -         2,059,677           27.60%
                                                     --------------    -------------    --------------    -------------

   Total                                              $  6,044,164             100%      $  7,463,825             100%
                                                     ==============    =============    ==============    =============
</TABLE>


                                       16
<PAGE>

     As of March 31, 2005,  the  Partnership  held 27 loans  secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the loans held by the Partnership as of March 31, 2005:

            PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
                              As of March 31, 2005

<TABLE>
<S> <C>                                                          <C>                 <C>              <C>
                                                                 # of Loans          Amount           Percent
                                                                -------------    ---------------    -------------

    1st Mortgages                                                         18      $   5,023,097              83%
    2nd Mortgages                                                          8            871,223              14%
    3rd Mortgages                                                          1            149,844               3%
                                                                =============    ===============    =============
           Total                                                          27      $   6,044,164             100%

    Maturing 12/31/05 and prior                                            3      $      88,981               1%
    Maturing prior to 12/31/06                                             3          1,146,716              19%
    Maturing prior to 12/31/07                                             2          1,246,754              21%
    Maturing after 12/31/07                                               19          3,561,713              59%
                                                                =============    ===============    =============
           Total                                                          27      $   6,044,164             100%

    Average Secured Loan                                                          $     223,858               4%
    Largest Secured Loan                                                                800,000              13%
    Smallest Secured Loan                                                                11,590            0.19%
    Average Loan-to-Value based upon appraisals and prior
        liens at time of loan                                                                             69.48%
</TABLE>

     The  Partnership's  largest  loan  in  the  principal  amount  of  $800,000
represents 13.24% of outstanding  secured loans and 8.66% of Partnership assets.
Over  time,  loans may  increase  above 10% of the  secured  loan  portfolio  or
Partnership assets as the loan portfolio and assets of the Partnership  decrease
due to limited partner withdrawals and/or loan payoffs.

Liquidity and Capital Resources.

     At the time of subscription  to the  Partnership,  limited  partners made a
decision to either take distributions of earnings monthly, quarterly or annually
or to compound  earnings in their capital  account.  For the three month periods
ended March 31, 2005 and 2004, the Partnership made distributions of earnings to
limited partners of $45,259 and $48,198, respectively.  Distribution of earnings
to limited partners,  which were not withdrawn for the three month periods ended
March 31, 2005 and 2004 were $92,446 and $90,497,  respectively. As of March 31,
2005 and 2004,  limited partners electing to withdraw  earnings  represented 33%
and 35% of the limited partners' capital.

     The Partnership  also allows the limited partners to withdraw their capital
account subject to certain limitations.  For the three month periods ended March
31, 2005 and 2004, $12,004 and $4,750, respectively,  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 March 31, 2005 and 2004.

     Additionally,  for the three month  periods  ended March 31, 2005 and 2004,
$62,225 and $67,608, 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.


                                       17
<PAGE>

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

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

Current Economic Conditions.

     Since  January,  2001, and through  December 31, 2003, the Federal  Reserve
reduced interest rates significantly by cutting the Federal Funds Rate to 1.00%.
From July 1, 2004 through  March 31, 2005,  the Federal  Reserve  increased  the
Federal  Funds Rate to 2.75%.  The effect of these  changes has greatly  reduced
short-term  interest  rates and to a lesser extent  reduced  long-term  interest
rates. The recent upward movement in the Federal Funds Rate during 2004 and 2005
has raised  short-term  rates but has not yet raised  long-term  interest  rates
significantly.  New loans will be originated at then existing interest rates. In
the future the general  partners  anticipate  that  interest  rates  likely will
change from their current levels.  The general  partners  cannot,  at this time,
predict  at what  levels  interest  rates  will be in the  future.  The  general
partners  anticipate that new loans will be placed during 2005 at rates slightly
higher than those that  prevailed in 2004.  The  lowering of interest  rates has
encouraged  those  borrowers that have mortgages with higher interest rates than
those  currently  available  to  seek  refinancing  of  their  obligations.  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, the general partners
expect to replace paid off loans with loans at somewhat lower interest rates. At
this time, the general partners believe that the average loan portfolio interest
rate will  remain  relatively  stable  over the year 2005.  Based upon the rates
payable 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 5.75% and 6.50%
in 2005.

     The Partnership makes loans primarily in Northern  California.  As of March
31, 2005,  approximately  59.09%,  ($3,571,744) of the secured loans held by the
Partnership  were in six San Francisco Bay Area  Counties.  The remainder of the
loans held was secured  primarily by Northern  California real estate outside of
the San Francisco Bay Area.

     Recently  the  national  and  Northern  California  economies  seem  to  be
improving.  Job creation  remains a concern,  as little job creation seems to be
evident.  The partnership makes loans primarily in Northern  California and real
estate values of residential,  commercial,  multi-family  properties and of land
are of  particular  interest  to the  partnership.  Real  estate is the  primary
security for the partnership's loans.


                                       18
<PAGE>

     The residential  real estate market in California  continues to appreciate.
The San Francisco  Chronicle  dated March 11, 2005 reported that "Median  prices
for existing homes in the Bay Area hit an all-time-high of $569,000 in February,
rocketing  19.5% from  $476,000  in February  2004 and up 2.3% from  $556,000 in
January. Prices are increasing at their fastest pace in four years, according to
DataQuick  Information Systems, a La Jolla (San Diego County) real estate market
research firm.  `It's  stronger than we'd  anticipated,'  said John Karevoll,  a
DataQuick  analyst.  `These  numbers show there's still gas in the tank, and the
market has a way to go before it levels  off. We did not  anticipate  a downturn
but  thought  we'd  be  coming  in  for a soft  landing.'  Instead,  prices  for
single-family  homes  continued to soar. Home buyers in the nine-county Bay Area
snapped up 4,905 resale  single-family  residences in February, a slight decline
form 4,925 last  February.  The highest  median  price was in Marin  County,  at
$808,000,  followed  by San Mateo at $711,000  and San  Francisco  at  $701,000,
according to DataQuick. Experts said low inventory continues to fuel the frenzy.
`The bottom line is lots of buyers and very few homes,' said Joan  Underwood,  a
broker with Marvin  Gardens who  specializes  in El Cerrito and Richmond  Annex.
Another  factor in the  increase  is that  interest  rates are  inching  higher.
Everyone  who looks at the market says the price  acceleration  can't last,  but
real estate agents and other experts said they expect a gradual  leveling rather
than a bubble bursting. Meanwhile, there still seems to be plenty of life in the
market. The record February prices,  which reflect homes that were on the market
in  historically  slow December and January,  are likely to be exceeded once the
spring season gets in full swing."

     On the  commercial  front the San Francisco  Business Times for April 8-14,
2005 reports that "Big  spenders are rolling back into San  Francisco and up the
city's  highrises  to lease the  swankiest  view space.  And the price is rising
fast.  In the past few months a handful of firms,  including  hedge fund  Caxton
Associates LLC and law firm McKenna Long & Aldridge,  LLP have leased prime view
space. Those firms did deals for the 33rd floor of the Transamerica  pyramid and
the  41st  floor  of 101  California  Street  for $60 and $53 per  square  foot,
respectively - a major pop from the mid-$40s range similar space  commanded less
than a year ago.  `Asking  rental  quotes  in the $50s or even the $60s  doesn't
elicit the broker  pushback it would have in 2004,'  said Jim  Ousman,  managing
director of leasing for Equity Office  Properties.  `That's an  indication  this
higher-end space is priced accordingly.' As the rest of the San Francisco office
market  struggles  with vacancy  rates that remain in the high teens and average
rents stuck at around $30, the vacancy rate for view space - the upper floors of
the best highrises - is an estimated 5%,  according to a recent study by Cushman
&  Wakefield.  Prices are being  rapidly  marked up to leverage  that  scarcity.
Leasing  agents  representing  landlords say the rise is being largely driven by
tenant  demand.  Whether  these  high  rents for  high-class  space  will have a
trickle-down  effect on the less desirable space is unclear.  The average asking
rents of Class A space in the central business  district last quarter  increased
roughly 3% to $30 a square foot,  according  to averages  from Grubb & Ellis Co.
and CB  Richard  Ellis  research  reports.  Some  pockets  are a little  hotter,
however,  like at 50 California  Street where rents have  increased 20% over the
past six months to as high as the mid $40 range."

     As described above, the commercial property market in the San Francisco Bay
Area has recently been improving. Increased occupancies in commercial properties
enable owners to better handle their debt payments.  Improved  occupancies  also
stabilize commercial real estate values, which benefits the Partnership.

     For  Partnership  secured  loans  outstanding  as of March  31,  2005,  the
Partnership  had an average  loan to value  ratio of 69.48%,  computed  based on
appraised  values  and  senior  liens as of the date  the  loan was  made.  This
percentage  does not account for any  increases or decreases in property  values
since  the date the  loan was  made,  nor  does it  include  any  reductions  in
principal on senior indebtedness through amortization of payments after the loan
was made. This low loan to value ratio will assist the Partnership in weathering
loan delinquencies and foreclosures should they eventuate.

Contractual Obligations Table.  None


                                       19
<PAGE>

Part I - Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market accounts,  secured loans held in the Partnership's portfolio and loans to
the  partnership  pursuant  to its line of  credit  as of March  31,  2005.  The
presentation,  for each  category  of  information,  aggregates  the  assets and
liabilities  by their  maturity  dates for  maturities  occurring in each of the
years 2005  through  2009 and  separately  aggregates  the  information  for all
maturities  arising  after  2009.  The  carrying  values  of  these  assets  and
liabilities approximate their fair market values as of March 31, 2005:
<TABLE>
<S>                              <C>           <C>          <C>           <C>           <C>        <C>             <C>
                                 2005          2006         2007          2008          2009       Thereafter      Total
                             -----------------------------------------------------------------------------------------------
Interest earning assets:
Money market accounts         $  351,759                                                                         $  351,759
Average interest rate              0.60%                                                                              0.60%
Unsecured loans                                                        $  240,275                                $  240,275
Average interest rate                                                          0%                                        0%
Loans secured by deeds
   of trust                   $   88,981    1,146,716    1,246,754         98,738     2,432,510     1,030,465    $6,044,164
Average interest rate             10.00%        9.73%        9.00%         10.50%         9.18%         9.39%         9.32%
Interest bearing
   Liabilities:
Line of credit                $        -                                                                         $        -
Average interest rate              6.00%                                                                              6.00%
</TABLE>

Market Risk.

     The Partnership's line of credit bears interest at a variable rate, tied to
the prime rate. As a result, the Partnership's primary market risk exposure with
respect to its  obligations is to changes in interest  rates,  which will affect
the interest cost of outstanding  amounts on the line of credit. The Partnership
may also suffer market risk tied to general trends  affecting real estate values
that may impact the Partnership's security for its loans.

     The Partnership's  primary market risk in terms of its profitability is the
exposure to  fluctuations  in earnings  resulting from  fluctuations  in general
interest rates. The majority of the  Partnership's  mortgage loans earn interest
at fixed  rates.  Changes  in  interest  rates may also  affect the value of the
Partnership's   investment  in  mortgage  loans  and  the  rates  at  which  the
Partnership  reinvests  funds  obtained  from loan  repayments  and new  capital
contributions  from limited partners.  If interest rates increase,  the interest
rates the Partnership obtains from reinvested funds will generally increase, but
the value of the Partnership's existing loans at fixed rates will generally tend
to decrease.  The risk is mitigated  by the fact that the  Partnership  does not
intend to sell its loan  portfolio,  rather  such  loans are held until they are
paid off. If interest  rates  decrease,  the amounts  becoming  available to the
Partnership  for  investment  due  to  repayment  of  Partnership  loans  may be
reinvested at lower rates than the  Partnership had been able to obtain in prior
investments,  or than the rates on the repaid loans. In addition,  interest rate
decreases may encourage  borrowers to refinance their loans with the Partnership
at a time where the  Partnership  is unable to reinvest  in loans of  comparable
value.

     The  Partnership  does not hedge or otherwise seek to manage  interest rate
risk. The Partnership does not enter into risk sensitive instruments for trading
purposes.


                                       20
<PAGE>

ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that the  amount  of such  losses  will vary from time to time,
depending  upon the risk  characteristics  of the loan  portfolio as affected by
economic  conditions and the financial  experiences of borrowers.  Many of these
factors  are beyond the  control of the  general  partners.  There is no precise
method of predicting  specific  losses or amounts that ultimately may be charged
off on  particular  segments of the loan  portfolio,  especially in light of the
current economic environment.

     The conclusion that a loan may become  uncollectible,  in whole or in part,
is  a  matter  of  judgment.  Although  institutional  lenders  are  subject  to
requirements and regulations  that, among other things,  require them to perform
ongoing analyses of their portfolios,  loan-to-value ratios, reserves, etc., and
to obtain and maintain  current  information  regarding  their borrowers and the
securing properties, the Partnership is not subject to these regulations and has
not  adopted  certain of these  practices.  Rather,  the  general  partners,  in
connection  with  the  periodic  closing  of  the  accounting   records  of  the
Partnership and the preparation of the financial  statements,  determine whether
the allowance for loan losses is adequate to cover  potential loan losses of the
Partnership.  As of March 31, 2005 the general partners have determined that the
allowance  for loan  losses of  $735,613  (8.04% of net  assets) is  adequate in
amount. Because of the number of variables involved, the magnitude of the swings
possible 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.  As of March 31, 2005, two loans  totaling  $206,504 were
delinquent 90 days or more in interest payments. Of these two, one loan totaling
$96,716 was also  categorized  as impaired.  Management  believes  that there is
sufficient collateral to cover the amount outstanding to the Partnership on both
of these loans.  Additionally,  the loan that is not impaired is still  accruing
interest.  The  allowance  for loan  losses of  $735,613 as of March 31, 2005 is
considered  reasonable  to  offset  potential  loss in loan  collections  in the
future.


Part I - Item 4.    Controls and Procedures

     As of March 31, 2005, the Partnership carried out an evaluation,  under the
supervision  and  with  the   participation  of  the  general  partners  of  the
effectiveness  of the  design  and  operation  of the  Partnership's  disclosure
controls and procedures  pursuant to Rule 13a-15 of the Securities  Exchange Act
of 1934, as amended. Based upon that evaluation,  the general partners concluded
that the  Partnership's  disclosure  controls and  procedures  are  effective in
timely  alerting the general  partners to material  information  relating to the
Partnership  that is required to be included in our  periodic  filings  with the
Securities and Exchange  Commission.  There were no  significant  changes in the
Partnership's internal control over financial reporting during the Partnership's
first fiscal quarter that have materially affected,  or are reasonably likely to
materially affect, the Partnership's internal control over financial reporting.


                                       21
<PAGE>

PART II   -   OTHER INFORMATION


      Item 1.     Legal Proceedings

                  The Partnership periodically is a defendant in various legal
                  actions. Please refer to Note 10 of the Financial Statements.


      Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

                  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

                  31.1 Certification of General Partner pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002
                  31.2 Certification of General Partner pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002
                  32.1 Certification of General Partner pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002
                  32.2 Certification of General Partner pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002


                                       22
<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 16th day of May
2005.


REDWOOD MORTGAGE INVESTORS VII


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


By:   Gymno Corporation, General Partner


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






                                       23
<PAGE>


                                                                   Exhibit 31.1

                          GENERAL PARTNER CERTIFICATION


     I, Michael R. Burwell, General Partner, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     (c)  disclosed  in this  report  any  change in the  Registrant's  internal
control over financial  reporting  that occurred  during the  Registrant's  most
recent fiscal quarter (the Registrant's  fourth fiscal quarter in the case of an
annual  report)  that  has  materially  affected,  or is  reasonably  likely  to
materially affect, the Registrant's  internal control over financial  reporting;
and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the  Registrant's  auditors  and the audit  committee of  Registrant's  board of
directors (or persons performing the equivalent function):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial data; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
May 16, 2005


                                       24
<PAGE>



                                                                   Exhibit 31.2

               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     (c)  disclosed  in this  report  any  change in the  Registrant's  internal
control over financial  reporting  that occurred  during the  Registrant's  most
recent fiscal quarter (the Registrant's  fourth fiscal quarter in the case of an
annual  report)  that  has  materially  affected,  or is  reasonably  likely  to
materially affect, the Registrant's  internal control over financial  reporting;
and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the  Registrant's  auditors  and the audit  committee of  Registrant's  board of
directors (or persons performing the equivalent function):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial data; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
May 16, 2005


                                       25
<PAGE>



                                                                   Exhibit 32.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Quarterly Report of Redwood  Mortgage  Investors VII
(the  "Partnership")  on Form 10-Q for the period ending March 31, 2005 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002,  I,  Michael  R.  Burwell,  General  Partner of the
Partnership, certify, that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership at the dates and for the periods indicated.




/s/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
May 16, 2005



                                       26
<PAGE>



                                                                   Exhibit 32.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Quarterly Report of Redwood  Mortgage  Investors VII
(the  "Partnership")  on Form 10-Q for the period ending March 31, 2005 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley    Act   of   2002,   I,   Michael   R.    Burwell,    President,
Secretary/Treasurer  & Chief  Financial  Officer of Gymno  Corporation,  General
Partner of the Partnership, certify that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership at the dates and for the periods indicated.




/s/ Michael R. Burwell
--------------------------------
Michael R. Burwell, President,
Secretary/Treasurer & Chief Financial
Officer of Gymno Corporation, General Partner
May 16, 2005


                                       27