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

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


For Period Ended                        March 31, 1997
-------------------------------------------------------------------------------
Commission file number                     33-30427
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                         REDWOOD MORTGAGE INVESTORS VII
-------------------------------------------------------------------------------
             (exact name of registrant as specified in its charter)

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

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

                                 (415) 365-5341
-------------------------------------------------------------------------------
               (Registrants telephone number, including area code)

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

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

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares  outstanding of each of the issuers class of
common stock, as of the latest date.


                                 NOT APPLICABLE
<PAGE>
<TABLE>


                                     Part I

                                     Item 1

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 Balance Sheets
                         December 31, 1996 (audited) and
                           March 31, 1997 (unaudited)

<CAPTION>
                                     ASSETS

                                                                   Mar. 31, 1997          Dec. 31, 1996
                                                                    (unaudited)             (audited)

<S>                                                                      <C>                   <C>     
Cash                                                                     $449,953              $755,089
                                                                   ---------------       ---------------

Accounts Receivable:
    Mortgage investments, secured by deeds of trust                    13,851,467            12,036,293
    Accrued interest on mortgage investments                              239,903               264,495
    Advances on mortgage investments                                       37,922                41,203
    Accounts receivable - unsecured                                       336,842               337,242
                                                                   ---------------       ---------------
                                                                       14,466,134            12,679,233
    Less allowance for doubtful accounts                                  325,764               228,647
                                                                   ---------------       ---------------

                                                                       14,140,370            12,450,586
                                                                   ---------------       ---------------

Real estate owned, acquired through foreclosure,
    at estimated net realizable value                                   1,243,602             1,468,345
Investment in Partnership                                                 264,231               242,394
Formation loan due from Redwood Mortgage                                  398,547               429,163
                                                                   ---------------       ---------------

                                                                      $16,496,703           $15,345,577
                                                                   ===============       ===============

                                         LIABILITIES AND PARTNERS CAPITAL

Liabilities:
    Note payable - bank line of credit                                 $2,625,000            $1,175,000
    Accounts payable and accrued expenses                                   1,472                 1,472
    Deferred Interest                                                           0               154,598
                                                                   ---------------       ---------------
                                                                        2,626,472             1,331,070

Partners  capital                                                      13,870,231            14,014,507
                                                                   ---------------       ---------------

                                                                      $16,496,703           $15,345,577
                                                                   ===============       ===============
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>

<PAGE>
<TABLE>
            
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
         FOR THE THREE MONTHS ENDED MARCH 31, 1997 and 1996 (unaudited)
<CAPTION>

                                                          3 months ended      3 months
                                                                                ended
                                                           Mar. 31, 1997    Mar. 31, 1996
                                                            (unaudited)      (unaudited)

Revenues:
<S>                                                             <C>               <C>    
    Interest on mortgage investments                            352,842           357,407
    Interest on bank deposits                                     1,397               668
    Late charges                                                  1,094             4,168
    Other                                                         4,131             3,520
                                                          --------------       -----------
                                                                359,464           365,763
                                                          --------------       -----------


Expenses:
    Interest on note payable - bank                              23,535            42,547
    Clerical costs through Redwood Mortgage                       9,773             9,782
    Amortization of organization costs                                0               368
    General Partner asset management fees                             0                 0
    Provision for doubtful accounts and losses on real
estate acquired
 .        through foreclosure                                     97,118            65,670
    Professional Services                                        13,376            16,102
    Printing, supplies and postage                                2,102                 0
    Other                                                         3,712             6,559
                                                          --------------       -----------
                                                                149,616           141,028
                                                          --------------       -----------

Net income                                                     $209,848          $224,735
                                                          ==============       ===========

Net income:  to General Partners (1%)                            $2,098            $2,247
Net income:  to Limited Partners (99%)                          207,750           222,488
                                                          ==============       ===========
                                                               $209,848          $224,735
                                                          ==============       ===========

Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and compounded                    $14.85            $14.71
                                                          --------------       -----------
  - where partner receives income in monthly                     $14.78            $14.64
distributions
                                                          --------------       -----------


<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>

<TABLE>



                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                             STATEMENTS OF CASH FLOWS
                                 FOR THREE MONTHS ENDED MARCH 31, 1996 (unaudited)
                                               AND 1997 (unaudited)
<CAPTION>

                                                                     Mar. 31, 1997         Mar. 31, 1996
                                                                      (unaudited)           (unaudited)

Cash flows from operating activities:

<S>                                                                         <C>                 <C>     
  Net income                                                                $209,848            $224,735
  Adjustments to reconcile net income to net cash provided by
       operating activities:
    Amortization of organization costs                                             0                 368
    Increase in allowance for doubtful accounts                               97,117            (10,000)
    (Increase) decrease in accrued interest and advances                      27,873            (36,789)
    Increase (decrease) in accounts payable and accrued expenses                   0              17,275
    Increase (decrease) in deferred interest on Mortgage Investments       (154,598)                   0
                                                                        -------------       -------------

  Net cash provided by operating activities                                  180,240             195,589
                                                                        -------------       -------------

Cash flows from investing activities:

      Net (increase) decrease in:
       Mortgage investments                                              (1,815,174)            (49,321)
       Formation loans                                                        30,616              25,977
       Real estate owned                                                     224,743           (201,114)
       Other receivables - unsecured                                             400              70,533
       Investment in Partnership                                            (21,837)                   0
                                                                        -------------       -------------

          Net cash provided by (used in) investing activities            (1,581,252)           (153,925)
                                                                        -------------       -------------

Cash flows from financing activities:

       Net increase (decrease) in note payable-bank                        1,450,000               (500)
       Early withdrawal penalties, net of credit to syndication costs        (8,644)             (4,005)
       Partners withdrawals                                                (345,480)           (180,008)
                                                                        -------------       -------------

           Net cash provided by (used in) financing activities             1,095,876           (184,513)
                                                                        -------------       -------------

Net increase (decrease) in cash                                            (305,136)           (142,849)
Cash - beginning of period                                                   755,089             514,840
                                                                        =============       =============
Cash - end of period                                                        $449,953            $371,991
                                                                        =============       =============


<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>

<TABLE>

                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                    STATEMENTS OF CHANGES IN PARTNERS CAPITAL
                               FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (audited)
                             AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (unaudited)
<CAPTION>

                                                          PARTNERS CAPITAL
                                ---------------------------------------------------------------------

                                                                      UNALLOCATED
                                   GENERAL           LIMITED          SYNDICATION
                                  PARTNERS           PARTNERS            COSTS               TOTAL
                                --------------     -------------    -----------------     ------------

<S>                                   <C>             <C>                 <C>              <C>       
Balances at December 31, 1993         11,978          13,596,915          (189,704)        13,419,189

Net income                             9,273             918,018                  0           927,291
Allocation of syndication              (810)            (80,190)             81,000                 0
costs
Early withdrawal penalties                 0            (34,001)             10,635          (23,366)
Partners  withdrawals                (8,463)           (560,753)                  0         (569,216)
                                 ------------      --------------      -------------      ------------

Balances at December 31, 1994         11,978          13,839,989           (98,069)        13,753,898

Net income                             9,120             902,840                  0           911,960
Allocation of syndication              (810)            (80,190)             81,000                 0
costs
Early withdrawal penalties                 0            (10,690)              3,344           (7,346)
Partners  withdrawals                (8,310)           (435,917)                  0         (444,227)
                                 ------------      --------------      -------------      ------------

Balances at December 31, 1995         11,978          14,216,032           (13,725)        14,214,285

Net income                             8,591             850,508                  0           859,099
Allocation of Syndication              (137)            (13,588)             13,725                 0
Costs
Early withdrawal penalties                 0            (37,345)                  0          (37,345)
Partners  withdrawals                (8,454)         (1,013,078)                  0       (1,021,532)
                                 ------------      --------------      -------------      ------------

Balances at September 30,            $11,978         $14,002,529                 $0       $14,014,507
1996

Net income                             2,098             207,750                  0           209,848
Early withdrawal penalties                 0             (8,644)                  0           (8,644)
Partners  withdrawals                (2,098)           (343,382)                  0         (345,480)
                                 ------------      --------------      -------------      ------------

Balance at March 31, 1997            $11,978         $13,858,253                 $0       $13,870,231
                                 ============      ==============      =============      ============









<FN>
See accompanying notes to Financial Statements.
</FN>
</TABLE>
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1997 (unaudited)

NOTE 1 - ORGANIZATION AND GENERAL

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

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.   As  Mortgage
Investments were identified,  partners were transferred from applicant status to
admitted partners participating in Mortgage Investment  operations.  Each months
income is allocated to partners based upon their proportionate share of partners
capital.  Some partners have elected to withdraw income on a monthly,  quarterly
or annual basis.

     A. Sales  Commissions - Formation  Loan Sales  commissions  ranging from 0%
(Units  sold by  General  Partners)  to 10% of the gross  proceeds  were paid by
Redwood  Mortgage,  an  affiliate  of the General  Partners  that  arranges  and
services  the  Mortgage  Investments.  To  finance  the sales  commissions,  the
Partnership  was authorized to loan to Redwood  Mortgage an amount not to exceed
8.3% of the gross  proceeds  provided  that the  Formation  Loan for the minimum
offering  period  could  be 10% of the  gross  proceeds  for  that  period.  The
Formation  Loan  is  unsecured  and  is  being  repaid,   without  interest,  in
installments of principal, over a ten year period commencing January 1, 1992. At
December 31, 1992,  Redwood Mortgage has borrowed  $914,369 from the Partnership
to cover sales commissions relating to $11,998,359 limited partner contributions
(7.62%).  Through March 31, 1997, $515,822 including $84,122 in early withdrawal
penalties, had been repaid leaving a balance of $398,547.

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenues and expenses are accounted for on the accrual basis of accounting.

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


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1997 (unaudited)

     Property  acquired through  foreclosure will be held for sale to return the
funds to the Mortgage  Investment  portfolio.  Such property is recorded at cost
which includes the principal  balance of the former Mortgage  Investment made by
the Partnership  plus accrued  interest,  payments made to keep the senior loans
current,  costs of  obtaining  title and  possession,  less rental  income or at
estimated net realizable value, if less. The difference between such costs and
estimated  net  realizable  value is deducted  from cost in the Balance Sheet to
arrive at the carrying value of such property.

     Mortgage  Investments and the related accrued  interest,  fees and advances
are  analyzed  on a  continuous  basis  for  recoverability.  Delinquencies  are
identified and followed as part of the Mortgage  Investment  system. A provision
is made for doubtful  accounts to adjust the allowance for doubtful  accounts to
an amount  considered by management to be adequate to provide for  unrecoverable
accounts receivable.

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet date and revenues and expenses
for the related periods.  Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through  foreclosure.  Actual  results  could  differ  significantly  from these
estimates.

     No provision  for Federal and State  income taxes is made in the  financial
statements  since  income taxes are the  obligation  of the partners if and when
income taxes apply.

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by Limited Partners for the entire period are actual amounts  allocated
to Limited  Partners who have their  investment  throughout  the period and have
elected to either  leave their  earnings to compound or have  elected to receive
monthly  distributions of their net income.  Individual income is allocated each
month  based on the  Limited  partners pro rata  share of  Partners Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those  individuals  who made or  withdrew  investments  during the
period,  or select other  options.  However,  the net income per $1,000  average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.

     The interim financial statements,  dated March 31, 1997, are unaudited, but
in the opinion of the General  Partners all  adjustments  (consisting  solely of
normal  adjustments)necessary to a fair presentation of the financial statements
at March 31, 1997 have been made.

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

     A.  Mortgage  Brokerage  Commissions  For services in  connection  with the
review, selection, evaluation, negotiation and extension of Mortgage Investments
in an amount up to 12% of the principal through the period ending 6 months after
the termination date of the offering. Thereafter, mortgage brokerage commissions
are  limited to an amount not to exceed 4% of the total  Partnership  assets per
year. The mortgage  brokerage  commissions are paid by the borrowers,  and thus,
not an expense of the Partnership.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1997 (unaudited)

     B. Mortgage  Servicing Fees Monthly mortgage servicing fees of up to 1/8 of
1% (1.5% annual) of the unpaid principal, or such lesser amount as is reasonable
and customary in the  geographic  area where the property  securing the Mortgage
Investment is located are paid to Redwood Mortgage.  Amounts remitted to Redwood
Mortgage and recorded as interest on Mortgage  Investments  is net of such fees.
In 1994,  all  $124,049  in  mortgage  servicing  fees were  waived  by  Redwood
Mortgage. In 1995, $66,888 of the total mortgage servicing fees of $100,282 were
waived.  In 1996,  $92,249 of the total mortgage  servicing fees of $189,516 and
for three months through March 31, 1997, $5,920 of the total mortgage  servicing
fees of $21,418, were waived by Redwood Mortgage.

     C. Asset  Management  Fee The  General  Partners  receive a monthly fee for
managing the Partnerships  Mortgage Investment portfolio and operations equal to
1/32 of 1% of the net asset  value (3/8 of 1%  annual).  For the  quarter  under
review and in 1996,  1995 and 1994, the asset  management  fees charged were $0,
$0, $0, and $10,008  respectively.  The computed  management  fees were $13,180,
$51,519, $50,360, and $53,537 respectively,  with the difference being waived by
the General Partners.

     D. Other Fees The  Partnership  Agreement  provides  for other fees such as
reconveyance,  Mortgage  assumption and Mortgage  extension  fees. Such fees are
incurred  by the  borrowers  and are  paid to  parties  related  to the  General
Partners.

     E.  Income  and Losses All income is  credited  or charged to  partners  in
relation to their respective partnership interests.  The partnership interest of
the General Partners (combined) is a total of 1%.

     F.  Operating  Expenses The General  Partners or their  affiliate  (Redwood
Mortgage) are reimbursed by the Partnership for all operating  expenses actually
incurred by them on behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
Limited Partners.  In 1994, all such expenses were absorbed by Redwood Mortgage.
For the three months  through March 31, 1997,  and in 1996 and 1995,  reimbursed
expenses totalled $9,773, $40,874 and $27,762, respectively.

     The General  Partners  collectively or severally were to contribute 1/10 of
1% in cash  contributions as proceeds from the offering were admitted to limited
Partner capital.  As of December 31, 1992 a General Partner,  GYMNO Corporation,
had  contributed  $11,998,  1/10  of  1% of  limited  partner  contributions  in
accordance with Section 4.02(a) of the Partnership Agreement.

NOTE 4 - OTHER PARTNERSHIP PROVISIONS

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

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


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1997 (unaudited)

     B. Term of the Partnership The term of the Partnership is  approximately 40
years,  unless sooner  terminated  as provided.  The  provisions  provide for no
capital  withdrawal for the first five years,  subject to the penalty  provision
set forth in (E) below. Thereafter,  investors have the right to withdraw over a
five-year period, or longer.

     C.  Election to Receive  Monthly,  Quarterly or Annual  Distributions  Upon
subscriptions,  investors elected either to receive monthly, quarterly or annual
distributions of earnings  allocations,  or to allow earnings to compound for at
least a period of 5 years.

     D. Profits and Losses  Profits and losses are  allocated  among the Limited
Partners according to their respective capital accounts after 1% is allocated to
the General Partners.

     E.  Liquidity,   Capital   Withdrawals  and  Early  Withdrawals  There  are
substantial   restrictions  on  transferability  of  Units  and  accordingly  an
investment in the  Partnership  is illiquid.  Limited  Partners have no right to
withdraw from the  partnership or to obtain the return of their capital  account
for at least one year from the date of purchase of Units.  In order to provide a
certain degree of liquidity to the Limited  Partners after the one-year  period,
Limited  Partners may withdraw all or part of their  Capital  Accounts  from the
Partnership  in four  quarterly  installments  beginning  on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given,  subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the  amount  withdrawn  as stated in the  Notice  of  Withdrawal  and will be
deducted from the Capital Account and the balance  distributed in four quarterly
installments.  Withdrawal  after the  one-year  holding  period  and  before the
five-year holding period will be permitted only upon the terms set forth above.

     Limited  Partners  also have the right  after  five  years from the date of
purchase of the Units to withdraw from the partnership on an installment  basis,
generally  over a five year  period in twenty  (20)  quarterly  installments  or
longer.  Once this five year  period  expires,  no  penalty  will be  imposed if
withdrawal   is  made  in  twenty  (20)   quarterly   installments   or  longer.
Notwithstanding  the  five-year  (or  longer)  withdrawal  period,  the  General
Partners will liquidate all or part of a Limited  Partners  capital  account in
four quarterly  installments  beginning on the last day of the calendar  quarter
following the quarter in which the notice of  withdrawal is given,  subject to a
10% early withdrawal  penalty applicable to any sums withdrawn prior to the time
when such sums could have been  withdrawn  pursuant to the five-year (or longer)
withdrawal period.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnerships  capacity  to return a Limited  Partners
capital account is restricted to the availability of Partnership cash flow.

     F.  Guaranteed   Interest  Rate  For  Offering  Period  During  the  period
commencing  with the day a Limited  Partner was admitted to the  Partnership and
ending 3 months  after the  offering  termination  date,  the  General  partners
guaranteed  an  interest  rate  equal to the  greater  of actual  earnings  from
mortgage operations or 2% above The Weighted Average cost of Funds Index for the
Eleventh District Savings Institutions (Savings & Loan & Thrift Institutions) as
computed by the Federal Home Loan Bank of San Francisco monthly, up to a maximum
interest rate of 12%. The  guarantee  amounted to $12,855 and $5,195 in 1990 and
1991, respectively. In 1992 and 1993, actual realization exceeded the guaranteed
amount each month.  None of 1994, or  thereafter,  was subject to the guarantee.
This guarantee is now no longer applicable.
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1997 (unaudited)

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling  $264,231 has been invested with that of two
other  Partnerships  (total cost to date,  primarily  land, of  $1,113,870) in a
partnership  which is in the  process of  obtaining  approval  for  constructing
approximately 72 single family homes for sale.  Redwood Mortgage Investors V, VI
and VII have first priority on return of investment  plus interest  thereon,  in
addition to a share of profits realized.

NOTE 6 - LEGAL PROCEEDINGS

     The  Partnership  is not a defendant in any legal actions.  However,  legal
actions against  borrowers and other involved parties have been initiated by the
Partnership  to help  assure  payments  against  unsecured  accounts  receivable
totalling $336,842 at March 31, 1997.

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

NOTE 7 - NOTE PAYABLE BANK - LINE OF CREDIT

     The  Partnership  has a  bank  line  of  credit  secured  by  its  Mortgage
Investment  portfolio  of up to  $3,000,000  at .50% over  prime.  The  balances
outstanding  as of December 31, 1996 and March 31,  1997,  were  $1,175,000  and
$2,625,000 respectively, and the interest rate at March 31, 1997 was 9.0% (8.50%
prime + .50%).

NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The Mortgage  Investments  are secured by recorded deeds of trust. At March
31, 1997,  there were 69 Mortgage  Investments  outstanding  with the  following
characteristics:

Number of Mortgage Investments outstanding                               69
Total Mortgage Investments outstanding                          $13,851,467

Average Mortgage Investment outstanding                            $200,746
Average Mortgage Investment as percent of total                        1.45%
Average Mortgage Investment as percent of Partners Capital             1.45%

Largest Mortgage Investment outstanding                          $1,400,000
Largest Mortgage Investment as percent of total                       10.11%
Largest Mortgage Investment as percent of Partners Capital            10.09%

Number of counties where security is located(all California)             17

Largest percentage of Mortgage Investments in one county              20.90%
Average Mortgage Investment to appraised value of security at
 time loan was consummated                                            67.06%

Number of Mortgage Investments in foreclosure                             4

     The cash  balance  at  March  31.  1997 of  $449,953  was in one bank  with
interest  bearing  balance  totalling  $143,328.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $349,953.
<PAGE>



            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed.  At March
31, 1997, Partners Capital totaled $13,870,231.

     The Partnership began funding Mortgage Investments on December 27, 1989 and
as of March 31,  1997 had  credited  the  Partners  accounts  with  income at an
average annualized (compounded) yield of 8.08%.

     Currently,  mortgage  interest rates are lower than those  prevalent at the
inception of the Partnership.  New Mortgage  Investments are being originated at
these lower  interest  rates.  The result is a reduction  of the average  return
across the entire  portfolio held by the  Partnership.  In the future,  interest
rates likely will change from their current levels.  The General Partners cannot
at this time predict at what levels  interest  rates will be in the future.  The
General  Partners  believe the rates charged by the Partnership to its borrowers
will not change  significantly  in the  immediate  future.  Based upon the rates
payable in connection with the existing  Mortgage  Investments,  the current and
anticipated interest rates to be charged by the Partnership, and current reserve
requirements,  the General  Partners  anticipate that the annualized  yield this
year will range only slightly higher from its current rate of 6.07%.

     The  Partnership has a line of credit with a commercial bank secured by its
Mortgage  Investments to a limit of $3,000,000,  at a variable interest rate set
at one half percent above the prime rate. Currently, it has borrowed $2,625,000.
This facility could increase as the Partnership  capital  increases.  This added
source of funds  helped in  maximizing  the  Partnership  yield by allowing  the
Partnership to minimize the amount of funds in lower yield  investment  accounts
when appropriate  Mortgage  Investments were not available and since most of the
Mortgage  Investments  made by the Partnership bear interest at a rate in excess
of the rate payable to the bank which  extended the line of credit by making the
interest rate spread between the mortgage  coupon rate and the credit line rate.
As of March 31, 1997, the  Partnership is current with its interest  payments on
the line of credit.

     The  Partnerships  income and  expenses,  accruals and  delinquencies  are
within the normal range of the General Partners  expectations,  based upon their
experience in managing similar Partnerships over the last twenty years. Borrower
foreclosures,  as set forth under Results of Operations,  are a normal aspect of
partnership  operations and the General  Partners  anticipate that they will not
have a material  effect on liquidity.  Cash is constantly  being  generated from
interest earnings, late charges, pre-payment penalties, amortization of Mortgage
Investments  and  pay-off on notes.  Currently,  cash flow  exceeds  Partnership
expenses and earnings payout requirements.  As Mortgage Investment opportunities
become  available,  excess cash and available funds are invested in new Mortgage
Investments.

     The General Partners  regularly review the Mortgage  Investment  portfolio,
examining the status of delinquencies,  the underlying collateral securing these
properties,  the REO expenses and sales  activities,  borrowers payment records,
etc.  Data on the local real estate market and on the national and local economy
are  studied.  Based upon this  information  and other data,  loss  reserves are
increased  or  decreased.  Because  of the  number of  variables  involved,  the
magnitude of the possible swings and the General  Partners  inability to control
many of these factors,  actual results may and do sometimes differ significantly
from estimates made by the General Partners.

     The Northern  California  recession reached bottom in 1993. Since then, the
California  economy  has  been  improving,   slowly  at  first,  but  now,  more
vigorously.  A wide variety of indicators suggest that the economy in California
was strong in 1996,  and the State is well - positioned  for fast  growth.  This
improvement is reflective in increasing property values, in job growth, personal
income  growth,  etc.,  which all translates  into more loan activity,  which of
course, is healthy for the Partnerships lending activity.
<PAGE>



I.  COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates for services  rendered  during the nine months ending March 31, 1997.
All such  compensation  is in compliance with the guidelines and limitations set
forth in the Prospectus:

ENTITY RECEIVING        DESCRIPTION OF COMPENSATION                      AMOUNT
COMPENSATION              and SERVICES RENDERED
--------------------------------------------------------------------------------


Redwood Mortgage      Mortgage servicing fees for
                     servicing Mortgage Investments      
                   ($5,920 waived by the General Partners.)            $15,498


General Partners   Asset Management Fee for managing assets                 $0
 &/or Affiliates  ($13,180 waived by the General Partners).

General Partners  1% interest in profits, losses and distributions
                    of cash available for distribution                  $2,098


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


Redwood Mortgage    Mortgage Brokerage  Commissions for
                    services in connection  with the review, 
                    selection,  evaluation,  negotiation, and
                    extension of the Mortgage  Investment
                    paid by the borrower and not by the Partnership.    $73,700

Redwood Mortgage    Processing  and Escrow  Fees for services
                    in connection with notary, document preparation, 
                    credit investigation, and escrow fees payable
                    by the borrower and not by the Partnership             $924


     III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME.
<PAGE>
<TABLE>

           MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1997

                             Partnership Highlights
<CAPTION>

Mortgage Investment to Value Ratios

<S>                                                            <C>          
First Trust Deeds                                              $4,161,021.46
Appraised Value of Properties *                                 8,591,228.00
   Total Investment as a % of Appraisal                               48.43%

First Trust Deed Mortgage Investments                           4,161,021.46
Second Trust Deed Mortgage Investments                          8,768,185.73
Third Trust Deed Mortgage Investments                             722,259.07
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            -----------------
                                                              $13,851,467.46

First Trust Deeds due other Lenders                            25,233,269.00
Second Trust Deeds due other Lenders                              979,402.00
Third Trust Deeds due other Lenders                               142,858.00
                                                            -----------------

Total Debt                                                    $40,206,996.46

   Appraised Property Value *                                  59,957,905.00
   Total Investment as a % of Appraisal                               67.06%

Number of Mortgage Investments Outstanding                                69

Average Investment                                               $200,745.91
Average Investment as a % of Net Assets                                1.45%
Largest Investment Outstanding                                 $1,400,000.00
Largest Investment as a % of Net Assets                               10.09%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 30.04%
Second Trust Deed Mortgage Investments                                63.30%
Third Trust Deed Mortgage Investments                                  5.22%
Fourth Trust Deed Mortgage Investments                                 1.44%
                                                             ----------------
Total                                                                100.00%

Mortgage Investments by Type of
Property                               Amount                    Percent

<S>                                   <C>                             <C>   
Owner Occupied Homes                  $1,524,337.67                   11.01%
Non Owner Occupied Homes               1,263,686.30                    9.12%
Apartments                             2,933,452.47                   21.18%
Commercial                             8,129,991.02                   58.69%
                                                             ----------------
                                  ------------------
Total                                $13,851,467.46                  100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 4
<FN>
     *Values  used are the  appraisal  values  utilized at the time the mortgage
investment was consummated.
</FN>
</TABLE>
<PAGE>



Diversification by County

County                                         Total Loans          Percent

Santa Clara                                  $2,895,411.23           20.90%
Alameda                                       2,635,139.35           19.02%
San Francisco                                 2,557,078.31           18.46%
Stanislaus                                    1,665,745.47           12.03%
San Mateo                                     1,363,611.91            9.85%
Contra Costa                                  1,146,871.31            8.28%
Sonoma                                          370,658.88            2.68%
El Dorado                                       274,178.59            1.98%
Sacramento                                      206,716.11            1.49%
Ventura                                         195,000.00            1.41%
Santa Barbara                                   122,229.04            0.88%
Solano                                          104,648.06            0.76%
Monterey                                         79,619.05            0.57%
Marin                                            62,765.54            0.45%
Santa Cruz                                       25,120.86            0.18%
Miscellaneous                                   146,673.75            1.06%
                                        -------------------      -----------

Total                                       $13,851,467.46          100.00%


     **  Redwood   Mortgage   Investors   VII,   together   with  other  Redwood
Partnerships,  holds a second  and a  fourth  trust  deed  against  the  secured
property. In addition, the principals behind the borrower corporation have given
personal guarantees as collateral.  The overall loan to value ratio on this loan
is 76.52%.  Besides the borrower  paying a fixed  interest  rate of 12.25%,  the
partnership  and  other  lenders  will  also be  entitled  to share  in  profits
generated  by  the  corporation  with  respect  to  the  secured  property.  The
affiliates of the Partnership had entered into previous loan  transactions  with
this borrower  which had been  concluded  successfully,  resulting in additional
revenue beyond interest payments for the affiliates involved.

*** Tuolume, Shasta
<PAGE>




                                     PART 2
                                OTHER INFORMATION

         Item 1.           Legal Proceedings

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

         Item 2.           Changes in the Securities

                                    Not Applicable

         Item 3.           Defaults upon Senior Securities

                                    Not Applicable

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

                                    Not Applicable

         Item 5.           Other Information

                                    Not Applicable

         Item 6.           Exhibits and Reports on Form 8-K

                           (a)      Exhibits

                                    Not Applicable

                           (b)      Form 8-K

                           The registrant has not filed any reports on Form 8-K
                          during the nine month period ending March 31, 1997.

<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934 the  registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereto duly  authorized on the 9th day of May,
1997.

REDWOOD MORTGAGE INVESTORS VII

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


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


By:      Gymno Corporation, General Partner


         By:     /s/ D. Russell Burwell
                 ---------------------------------------------
                 D. Russell Burwell, President


         By:     /s/ Michael R. Burwell
                 ---------------------------------------------
                 Michael R. Burwell, Secretary/Treasurer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 9th day of May, 1997.

Signature                            Title                                Date


/s/ D. Russell Burwell
-----------------------
D. Russell Burwell                General Partner                   May 9, 1997


/s/ Michael R. Burwell
-----------------------
Michael R. Burwell                General Partner                   May 9, 1997



/s/ D. Russell Burwell
----------------------
D. Russell Burwell       President of Gymno Corporation,            May 9, 1997
                         (Principal Executive Officer);
                         Director of Gymno Corporation


/s/ Michael R. Burwell
----------------------
Michael R. Burwell      Secretary/Treasurer of Gymno               May 9, 1997
                       Corporation (Principal Financial
                          and Accounting Officer);
                        Director of Gymno Corporation
<PAGE>