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, 1998
---------------------------- --------------------------------------------------
Commission file number                            33-30427
---------------------------- ---------------------------------------------------

                         REDWOOD MORTGAGE INVESTORS VII
-------------------------------------------------------------------------------
              (exact name of registrant as specified in its charter)

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

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

                                (650) 365-5341
-------------------------------------------------------------------------------
           (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>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                         DECEMBER 31, 1996 (audited) and
                           MARCH 31, 1998 (unaudited)

                                     ASSETS

                                                                          Mar 31, 1998          Dec 31, 1997
 <CAPTION>
                                                                        (unaudited)            (audited)
                                                                         ---------------       ---------------

<S>                                                                            <C>                   <C>     
Cash                                                                           $143,370              $520,837
                                                                         ---------------       ---------------

Accounts receivable:
  Mortgage Investments, secured by deeds of trust                            14,036,897            13,449,741
  Accrued Interest on Mortgage Investments                                      300,045               427,952
  Advances on Mortgage Investments                                               34,964                33,154
  Accounts receivables, unsecured                                               251,837               252,422
                                                                         ---------------
                                                                                               ---------------
                                                                             14,623,743            14,163,269

  Less allowance for doubtful accounts                                          499,902               424,738
                                                                         ---------------       ---------------
                                                                             14,123,841            13,738,531
                                                                         ---------------       ---------------

Real estate owned, acquired through foreclosure, held for sale                  645,864               687,139
Investment in partnership                                                       353,155               346,017
                                                                         ---------------       ---------------

                                                                            $15,266,230           $15,292,524
                                                                         ===============       ===============

                                         LIABILITIES AND PARTNERS CAPITAL


Liabilities:
  Notes payable - bank line of credit                                          $2,582,663          $2,341,816
  Accounts payable and accrued expenses                                             1,845               1,845
  Deferred Interest                                                                     0              69,316
                                                                            --------------      --------------
                                                                                2,584,508           2,412,977
                                                                            --------------      --------------

Partners Capital
  Limited partners capital, subject to redemption (Note 4E):
     Net of formation loan receivable of $314,033 and $341,275 for
       1998, and 1997, respectively                                            12,669,744          12,867,569

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

           Total Partners  Capital                                             12,681,722          12,879,547
                                                                            --------------      --------------

           Total Liabilities and Partners  Capital                            $15,266,230         $15,292,524
                                                                            ==============      ==============
<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, 1998 and 1997 (unaudited)

                                                          3 months ended      3 months ended
                                                            Mar. 31, 1998     Mar. 31, 1997
                                                            (unaudited)      (unaudited)
<CAPTION>

Revenues:
<S>                                                            <C>               <C>     
    Interest on mortgage investments                           $386,870          $368,340
    Interest on bank deposits                                     2,196             1,397
    Late charges                                                    564             1,094
    Other                                                         2,970             4,131
                                                          --------------       -----------
                                                                392,600           374,962
                                                          --------------       -----------


Expenses:
    Interest on note payable - bank                              52,446            23,535
    Clerical costs through Redwood Mortgage                       8,794             9,773
    Mortgage Servicing Fees                                      26,413            15,498
    General Partner asset management fees                         4,145                 0
    Provision for doubtful accounts and losses on real
estate acquired
 .        through foreclosure                                     73,398            97,118
    Professional Services                                        16,942            13,376
    Printing, supplies and postage                                2,898             2,102
    Other                                                         3,908             3,712
                                                          --------------       -----------
                                                                188,944           165,114
                                                          --------------       -----------

Net income                                                     $203,656          $209,848
                                                          ==============       ===========

Net income:  to General Partners (1%)                            $2,036            $2,098
Net income:  to Limited Partners (99%)                          201,620           207,750
                                                          ==============       ===========
                                                               $203,656          $209,848
                                                          ==============       ===========

Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and compounded                    $15.28            $14.85
                                                          --------------       -----------
  - where partner receives income in monthly                     $15.20            $14.78
distributions
                                                          --------------       -----------


<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, 1997 (audited) AND
                                 THE THREE MONTHS ENDED MARCH 31, 1998 (unaudited)


                                                                     PARTNERS CAPITAL
                                         ---------------------------------------------------------------------------
                                                                 LIMITED PARTNERS CAPITAL
                                         ---------------------------------------------------------------------------

                                            Capital
                                            Account          Unallocated         Formation
                                            Limited          Syndication            Loan
                                           Partners             Costs            Receivable           Total
                                         --------------     ---------------    ---------------    --------------
<CAPTION>

<S>                                        <C>                   <C>               <C>              <C>        
Balances at December 31, 1994              $13,839,989           $(97,088)         $(604,939)       $13,137,962

Formation Loan collections                           0                   0             80,542            80,542
Net income                                     902,840                   0                  0           902,840
Allocation of syndication costs               (80,190)              80,190                  0                 0
Early withdrawal penalties                    (10,690)               3,310              7,346              (34)
Partners withdrawals                         (435,917)                   0                  0         (435,917)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1995               14,216,032            (13,588)          (517,051)        13,685,393

Formation Loan collections                           0                   0             62,225            62,225
Net income                                     850,508                   0                  0           850,508
Allocation of syndication costs               (13,588)              13,588                  0                 0
Early withdrawal penalties                    (37,345)                   0             25,663          (11,682)
Partners  withdrawals                      (1,013,078)                   0                  0       (1,013,078)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1996              $14,002,529                  $0         $(429,163)       $13,573,366

Formation Loan collections                           0                   0             60,223            60,223
Net Income                                     818,610                   0                  0           818,610
Early withdrawal penalties                    (40,258)                   0             27,665          (12,593)
Partners  withdrawals                      (1,572,037)                   0                  0       (1,572,037)
                                         --------------     ---------------    ---------------    --------------

Balances at December 31, 1997              $13,208,844                  $0         $(341,275)       $12,867,569

Formation Loan collections                           0                   0             21,972            21,972
Net Income                                     201,620                   0                  0           201,620
Early withdrawal penalties                     (7,669)                   0              5,270           (2,399)
Partners  withdrawals                        (419,018)                   0                  0         (419,018)
                                         --------------     ---------------    ---------------    --------------

Balances at March 31, 1998                 $12,983,777                  $0         $(314,033)       $12,669,744
                                         ==============     ===============    ===============    ==============

<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, 1997 (audited) AND
                                 THE THREE MONTHS ENDED MARCH 31, 1998 (unaudited)


                                                                       PARTNERS CAPITAL
                                         ------------------------------------------------------------------------------
                                                         GENERAL PARTNERS CAPITAL
                                         ----------------------------------------------------------
                                          Capital Account         Unallocated                               Total
                                         General Partners      Syndication Costs                          Partners
                                                                                          Total            Capital
<CAPTION>
                                         ------------------    -------------------     ------------    ----------------

<S>                                                <C>                     <C>             <C>             <C>        
Balances at December 31, 1994                      $11,978                 $(981)          $10,997         $13,148,959

Formation Loan collections                               0                      0                0              80,542
Net income                                           9,120                      0            9,120             911,960
Allocation of syndication costs                      (810)                    810                0                   0
Early withdrawal penalties                               0                     34               34                   0
Partners  withdrawals                              (8,310)                      0          (8,310)           (444,227)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1995                       11,978                  (137)           11,841          13,697,234

Formation Loan collections                               0                      0                0              62,225
Net income                                           8,591                      0            8,591             859,099
Allocation of syndication costs                      (137)                    137                0                   0
Early withdrawal penalties                               0                      0                0            (11,682)
Partners  withdrawals                              (8,454)                      0          (8,454)         (1,021,532)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1996                       11,978                      0           11,978          13,585,344

Formation Loan collections                               0                      0                0              60,223
Net income                                           8,269                      0            8,269             826,879
Early withdrawal penalties                               0                      0                0            (12,593)
Partners  withdrawals                              (8,269)                      0          (8,269)         (1,580,306)
                                         ------------------    -------------------     ------------    ----------------

Balances at December 31, 1997                      $11,978                     $0          $11,978         $12,879,547

Formation Loan collections                               0                      0                0              21,972
Net income                                           2,036                      0            2,036             203,656
Early withdrawal penalties                               0                      0                0             (2,399)
Partners  withdrawals                              (2,036)                      0          (2,036)           (421,054)
                                         ------------------    -------------------     ------------    ----------------

Balances at March 31, 1998                         $11,978                     $0          $11,978         $12,681,722
<FN>
                                         ==================    ===================     ==============  ======================
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>

<TABLE>

                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A Califonira Limited Partnership)
                                             STATEMENTS OF CASH FLOWS
                          FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (unaudited)

                                                                           3 months ended         3 months ended
                                                                            Mar 31, 1998           Mar 31, 1997
Cash flows from operating activities:                                       (unaudited)             (unaudited)
<CAPTION>
                                                                          -----------------      ------------------
  Net income
<S>                                                                               <C>                     <C>     
  Adjustments to reconcile net income to net cash provided by                     $203,656                $209,848
      operating activities:
    Provision for doubtful accounts                                                 73,398                  82,151
    Provision for losses on real estate held for sale                                    0                  14,967
    Early withdrawal penalty credited to income                                    (2,399)                 (3,935)
    (Increase) decrease in accrued interest & advances                             126,097                  27,873
    Increase (decrease) in accounts payable and accrued expenses                         0                       0
    Increase (decrease) in deferred interest on Mortgage Investments              (69,316)               (154,598)
                                                                          -----------------      ------------------

      Net cash provided by operating activities                                    331,436                 176,306
                                                                          -----------------      ------------------

Cash flows from investing activities:
    Principal collected on mortgage investments                                    536,021                 248,368
    Mortgage Investments made                                                  (1,123,177)             (2,154,283)
    Additions to Real Estate held for sale                                         (3,785)                (17,467)
    Dispositions of real estate held for sale                                       47,411                 333,350
    Investment in partnership                                                      (7,138)                (21,837)
                                                                          -----------------      ------------------

      Net cash provided by (used in) investing activities                        (550,668)             (1,611,869)
                                                                          -----------------      ------------------

Cash flows from financing activities:
  Increase in note payable-bank                                                    240,847               1,450,000
  Formation loan collections                                                        21,972                  21,972
  Partners withdrawals                                                           (421,054)               (341,545)
                                                                          -----------------      ------------------

      Net cash provided by (used in) financing activities                        (158,235)               1,130,427
                                                                          -----------------      ------------------

Net increase (decrease) in cash                                                  (377,467)               (305,136)

Cash - beginning of period                                                         520,837                 755,089
                                                                          -----------------      ------------------

Cash - end of period                                                              $143,370                $449,953
                                                                          =================      ==================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (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  had  borrowed  $914,369  from  the
Partnership to cover sales commissions  relating to $11,998,359  limited partner
contributions  (7.62%).  Through March 31, 1998,  $600,336 including $108,413 in
early withdrawal penalties,  had been repaid leaving a balance of $314,033.  The
Formation  Loan,  which is due from an affiliate of the General  Partners,  has
been deducted from Limited  Partners  capital in the balance sheet.  As amounts
are collected from Redwood Mortgage, the deduction from capital will be reduced.

B. Other Organizational and Offering Expenses

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

     Organization  costs of  $10,102  and  syndication  costs of  $415,692  were
incurred by the  Partnership.  The sum of organization  and  syndication  costs,
$425,794,  approximated 3.55% of the gross proceeds contributed by the Partners.
Both the  Organization  and  Syndication  Costs  have been fully  amortized  and
allocated to the Partners.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Accrual Basis

     Revenues and expenses are  accounted for on the accrual basis of accounting
wherein  income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage  Investment is  categorized  as impaired,  interest is no longer
accrued thereon.

B. Management Estimates

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

C. Mortgage Investments, Secured by Deeds of Trust

     The  Partnership  has both the  intent  and  ability  to hold the  Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial  statement  purposes  with  interest  thereon being
accrued by the simple interest method.

     Financial   Accounting  Standards  Board  Statements  (SFAS)  114  and  118
(effective  January 1, 1995) provide that if the probable  ultimate  recovery of
the carrying amount of a mortgage  investment,  with due  consideration  for the
fair value of  collateral,  is less than the  recorded  investment,  and related
amount due and the  impairment  is considered  to be other than  temporary,  the
carrying  amount of the investment  (cost) shall be reduced to the present value
of future cash flows.  The adoption of these  statements did not have a material
effect on the  financial  statements  of the  Partnership  because  that was the
valuation method previously used on impaired Mortgage Investments.

     At March 31, 1998 and at December 31, 1997,  1996 and 1995,  reductions  in
the cost of Mortgage  Investments  categorized  as  impaired by the  Partnership
totalled $0, $0, $9,595, and $0 respectively.  The reduction in stated value was
accomplished by increasing the allowance for doubtful accounts.

     As presented in Note 10 to the  financial  statements as of March 31, 1998,
the average  mortgage  investment to appraised value of security at the time the
Mortgage  Investments were consummated was 59.72%. When a Mortgage Investment is
valued  for  impairment  purposes,  an  updating  is  made in the  valuation  of
collateral security.  However,  such a low loan to value ratio tends to minimize
reductions for impairment.

D. Cash and Cash Equivalents

     For purposes of the  statements  of cash flows,  cash and cash  equivalents
include interest bearing and non-interest bearing bank deposits.

E. Real Estate Owned, Held for Sale

     Real estate owned,  held for sale,  includes real estate  acquired  through
foreclosure,  and is  stated  at the  lower of the  recorded  investment  in the
property,  net of any senior  indebtedness,  or at the propertys estimated fair
value, less estimated costs to sell.
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                    NOTES TO
                              FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

     The following  schedule  reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of March 31,1998, and December 31, 1997, 1996:

<TABLE>
                                                 March 31,           December 31,            December 31,
                                                   1998                  1997                  1996
<CAPTION>
                                              ----------------      ----------------      ----------------

<S>                                                  <C>                   <C>                 <C>       
Costs of properties                                  $865,254              $906,499            $1,655,786
Reduction in value                                    219,390               219,360               187,441
                                              ----------------      ----------------      ----------------

Fair value reflected in financial statements         $645,864              $687,139            $1,468,345

                                              ================      ================      ================
</TABLE>

     Effective  January 1, 1996,  the  Partnership  adopted  the  provisions  of
statement  No 121  (SFAS  121)  of the  Financial  Accounting  Standards  Board,
Accounting  for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The  adoption of SFAS 121 did not have a material  impact on the
Partnerships  financial  position because the methods indicated were essentially
those previously used by the Partnership.

F. Investment in Partnership (see note 5)

     The  Partnership  accounts  for  its  investment  in a  partnership  as  an
investment  in real estate,  which is at the lower of costs or fair value,  less
estimated  costs to sell. At March 31, 1998,  cost is considered  less than fair
value and the investment is stated at cost in the financial statements.

G. Income Taxes

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

H. Organization and Syndication Costs

     The Partnership  bears its own  organization  and syndication  costs (other
than certain sales  commissions  and fees described  above)  including legal and
accounting expenses,  printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees.  Organizational  costs of $10,102 were capitalized and were
amortized  over a five year period.  Syndication  costs of $415,692 were charged
against  partners capital and were allocated to individual  partners  consistent
with the Partnership Agreement.

I. Allowance for Doubtful Accounts

     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,  with due  consideration  to
collateral value, to provide for unrecoverable  accounts  receivable,  including
impaired  mortgage  investments,   unspecified  mortgage  investments,   accrued
interest and advances on mortgage  investments,  and other  accounts  receivable
(unsecured).  The composition of the allowance for doubtful accounts as of March
31, 1998, and December 31, 1997, and 1996 was as follows:

<PAGE>

<TABLE>

                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                           NOTES TO FINANCIAL STATEMENTS
                                          DECEMBER 31, 1997(audited) AND
                                            MARCH 31, 1998 (unaudited)

                                                 March 31,           December 31,            December 31,
                                                   1998                  1997                  1996
<CAPTION>
                                              ----------------      ----------------      ----------------

<S>                                                        <C>                   <C>               <C>   
Impaired Mortgage Investments                              $0                    $0                $9,595
Unspecified Mortgage Investments                      359,902               284,738                19,052
Accounts receivable, unsecured                        140,000               140,000               200,000
                                              ================      ================      ================
                                                     $499,902               424,738              $228,647
                                              ================      ================      ================
</TABLE>

J. Net Income Per $1,000 Invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by Limited Partners for the entire period are actual amounts  allocated
to Limited  Partners who 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.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)


NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

A. Mortgage Brokerage Commissions

     Redwood Mortgage  receives 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
Investment  brokerage  commissions  are limited to an amount not to exceed 4% of
the  total  Partnership  assets  per year.  The  Mortgage  Investment  brokerage
commissions  are  paid  by  the  borrowers,  and  thus,  not an  expense  of the
Partnership.

B. Mortgage Servicing Fees

     Redwood Mortgage also receives 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.  Mortgage  servicing fees of $26,413,  $83,559,
$97,267 and $33,394 were  incurred for three months  through  March 31, 1998 and
for years 1997, 1996 and 1995, respectively.

C. Asset Management Fee

     The General  Partners  receive a monthly fee for managing the  Partnerships
Mortgage  Investment  portfolio  and  operations  of up to 1/32 of 1% of the net
asset value (3/8 of 1% annual).  No management fees have been incurred for years
1997,  1996 and 1995,  respectively.  For three months  through  March 31, 1998,
management fee of $4,145 was paid to 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%.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

     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.   Such  reimbursements  are  reflected  as  expenses  in  the
Statements of Income.

G. General Partners Contributions

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

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.

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
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

     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.
Furthermore,  no more than 20% of the total Limited  Partners  capital  accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.

F. Guaranteed Interest Rate For Offering Period

     During the period commencing with the day a Limited Partner was admitted to
the  Partnership  and ending 3 months after the offering  termination  date, the
General  partners  guaranteed  an  interest  rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh  District Savings  Institutions  (Savings & Loan & Thrift
Institutions)  as  computed  by the  Federal  Home  Loan  Bank of San  Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively.  In 1992 and 1993, actual realization
exceeded the  guaranteed  amount each month.  Beginning  with fiscal years after
1993, the guarantee no longer applies.

NOTE 5 - INVESTMENT IN PARTNERSHIP 

     The Partnerships  interest in land, acquired through foreclosure,  located
in East Palo Alto,  CA.,  with costs  totalling  $353,155 has been invested with
that  of two  other  Partnerships  (total  cost  to  date,  primarily  land,  of
$1,488,817) in a partnership  which is in the process of obtaining  approval for
constructing  approximately  63 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 $251,837 at March 31, 1998.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

     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 March 31, 1998,  December 31, 1997 and December 31, 1996 were
$2,582,663,  $2,341,816,  and $1,175,000 respectively,  and the interest rate at
March 31, 1998 was 9.00% (8.50% prime + .50%).  The expiration  date of the line
of credit is September 1, 1998.

NOTE 8 - INCOME TAXES

     The following reflects a reconciliation  from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:
<TABLE>

                                                          March 31,             Dec. 31              Dec. 31
                                                             1998                1997                 1996
<CAPTION>
                                                        ---------------      --------------       --------------

<S>                                                        <C>                 <C>                  <C>        
Net assets - Partners  Capital per financial               $12,681,722         $12,879,547          $13,585,344
statements
Formation Loan receivable                                      314,033             341,275              429,163
Allowance for doubtful accounts                                499,902             424,738              228,647
                                                        ===============      ==============       ==============
Net assets tax basis                                       $13,495,657         $13,645,560          $13,495,657
                                                        ===============      ==============       ==============
</TABLE>

     In 1997,  approximately  68% of taxable  income was allocated to tax exempt
organizations i.e.,  retirement plans. Such plans do not have to file income tax
returns unless their  unrelated  business  income  exceeds  $1,000.  Applicable
amounts become taxable when distribution is made to participants.

NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     (a) Cash and Cash  Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) The  Carrying  Value  of  Mortgage  Investments  - (see  note 2 (c)) is
$14,036,897.  The March 31, 1998, fair value of these investments of $13,955,041
is estimated based upon projected cash flows discounted at the estimated current
interest  rates at  which  similar  Mortgage  Investments  would  be  made.  The
applicable  amount of the  allowance  for doubtful  accounts  along with accrued
interest and advances  related  thereto  should also be considered in evaluating
the fair value versus the carrying value.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The Mortgage  Investments  are secured by recorded deeds of trust. At March
31, 1998,  there were 62 Mortgage  Investments  outstanding  with the  following
characteristics:
<TABLE>

<S>                                                                                                       <C>
Number of Mortgage Investments outstanding                                                                62
Total Mortgage Investments outstanding                                                           $14,036,897

Average Mortgage Investment outstanding                                                             $226,402
Average Mortgage Investment as percent of total                                                        1.61%
Average Mortgage Investment as percent of Partners Capital                                            1.79%

Largest Mortgage Investment outstanding                                                           $1,050,000
Largest Mortgage Investment as percent of total                                                        7.48%
Largest Mortgage Investment as percent of Partners  Capital                                            8.28%

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

Largest percentage of Mortgage Investments in one county                                              24.44%
Average Mortgage Investment to appraised value of security at time Mortgage Investment was            59.72%
consummated

Number of Mortgage Investments in foreclosure                                                              3
</TABLE>

     The following categories of mortgage investments are pertinent at March 31,
1998, and December 31, 1997, 1996:
<TABLE>

                                                  March 31            December 31           December 31
                                              ----------------      -----------------      ----------------
                                                    1998                 1997                   1996
                                               ---------------      ----------------      -----------------
<CAPTION>

<S>                                                <C>                   <C>                    <C>       
First Trust Deeds                                  $7,675,194            $6,810,113             $4,199,552
Second Trust Deeds                                  5,442,151             5,719,369              6,913,853
Third Trust Deeds                                     719,551               720,258                722,887
Fourth Trust Deeds                                    200,001               200,001                200,001
                                               ---------------      ----------------      -----------------
  Total mortgage investments                       14,036,897            13,449,741             12,036,293
Prior liens due other lenders                      16,504,941            17,951,579             22,069,554
                                                                    ----------------      -----------------
                                               ===============
  Total debt                                      $30,541,838           $31,401,320            $34,105,847
                                               ===============      ================      =================

Appraised property value at time of loan          $51,139,122           $52,077,885            $51,863,991
                                               ===============      ================      =================

Total investments as a percent of appraisals           59.72%                60.30%                 65.76%
                                               ===============      ================      =================

Investments by Type of Property

Owner occupied homes                               $1,112,230            $1,104,742             $1,742,767
Non-Owner occupied homes                            1,640,619             1,464,596              1,112,274
Apartments                                          1,232,675             1,666,916              1,325,872
Commercial                                         10,051,373             9,213,487              7,855,380
                                               ===============      ================      =================
                                                  $14,036,897           $13,449,741            $12,036,293
                                               ===============      ================      =================
</TABLE>


<PAGE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1997(audited) AND
                           MARCH 31, 1998 (unaudited)

     Scheduled maturity dates of mortgage  investments as of March 31, 1998, are
as follows:

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

                            1998                                     $3,781,467
                            1999                                      2,758,410
                            2000                                      1,987,290
                            2001                                      1,117,955
                            2002                                      1,321,175
                         Thereafter                                   3,070,600
                                                                 ===============
                                                                     $14,036,897
                                                                 ===============

     The  scheduled  maturities  for 1998 include  approximately  $1,914,661  in
thirteen  mortgage  investments  which  are past  maturity  at March  31,  1998.
Interest payment on most of these Mortgage Investments are current.  $110,000 of
those Mortgage Investments were categorized as delinquent over 90 days.

     Three  Mortgage  Investments  with  principal  outstanding  of $480,895 had
interest  payments  overdue in excess of 90 days. Two Mortgage  Investments with
principal  outstanding of $245,250 were  considered  impaired at March 31, 1998.
That is interest accruals are no longer recorded thereon.

     The cash  balance  at March 31,  1998 of  $143,370  was in one bank with an
interest bearing balance totalling $2,811.  The balances exceeded FDIC insurance
limits (up to  $100,000  per bank) by $43,370.  This bank is the same  financial
institution  that has provided the Partnership with the $3,000,000 limit line of
credit.  At March 31, 1998, draw down against this facility was  $2,582,663.  As
and when  deposits in the  Partnerships  bank accounts  increase  significantly
beyond  the  insured  limit,  the  funds  are  either  placed  on  new  Mortgage
Investments or used to pay-down on the line of credit balance.

<PAGE>

            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed.  At March
31, 1998, Partners Capital totaled $12,681,722.

     At  March  31,  1998,  the  Partnership  Mortgage  Investments  outstanding
totalled  $14,036,897.   Mortgage  Investments  increased  from  $13,449,741  to
$14,036,897 during three months through March 31, 1998, an increase of $587,156,
chiefly  due to the  ability of the  General  Partners to reduce the net amounts
invested in real estate owned (REO) during the three months,  by increasing bank
credit line borrowing to $2,582,663 as of March 31, 1998,  from $2,341,816 as of
December 31, 1997,  by  reinvestment  of earnings of $203,656 and  investment of
cash. The ability of the  Partnership to invest in new Mortgage  Investments was
partially  offset by  withdrawals  of income and capital by the  Partners in the
amount of $421,054. Mortgage Investments decreased slightly, by $346,348, during
the year ended December 31, 1996,  from  $12,382,641 as of December 31, 1995, to
$12,036,293 as of December 31, 1996. This Mortgage Investment  reduction was due
primarily  to a reduced  usage of the bank line of  credit.  The  effect of more
outstanding  Mortgage  Investments  as of March 31, 1998, was an increase in the
gross amount of interest earned from Mortgage Investments. The Partnership began
funding Mortgage Investments on December 27, 1989, and as of March 31, 1998, had
credited the Partners accounts with income at an average annualized (compounded)
yield of 7.84%.

     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 somewhat slightly higher from its current rate of 6.10%.

     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. As of March 31, 1998, it has borrowed
$2,582,663.  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  are not currently
available.  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, once the required principal and interest payments on the line of
credit are paid to the bank, the Mortgage  Investments  funded using the line of
credit  generate  revenue  for  the  Partnership.  As of  March  31,  1998,  the
Partnership  is current  with its  interest  payments on the line of credit.  In
1994,  the  Partnership  incurred  $135,790 of interest  on note  payables.  The
interest  rate on the line of credit  was Prime + 3/4% and the  Partnership  was
able to maintain a positive  spread  between the cost of borrowing the funds and
interest earned on lending the funds. In 1995, the Partnership incurred $163,361
of interest on note payables  reflecting a small increase in the overall average
credit balance  outstanding.  The Partnership still maintained a positive spread
between the cost of borrowing  the funds and the interest  earned in lending the
funds.  In  1996,   interest  payments  decreased  to  $127,454  reflecting  the
Partnerships  overall  smaller  average  outstanding  credit  line  balance due
primarily to a large number of Mortgage Investment  payoffs.  For the year ended
December 31, 1997,  and three months period ended March 31, 1998,  interest paid
was $198,316 and $52,446 respectively, reflecting an overall greater utilization
of the credit line from the previous three years.

     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-one  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.  As of March 31, 1998,  there were
three  properties  in  foreclosure.  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  of  decreased.  Because  of the  number on  variables  involved,  the
magnitude of the possible swings and the General  Partners  inability to control
many of these factors,  actual results may and do sometimes differ significantly
from  estimates  made by the General  Partners.  Management  provided  $306,779,
$419,437,  $434,495 and $73,398 as provision for doubtful accounts for the years
ended  December 31, 1995,  1996,  1997 and three months  through March 31, 1998,
respectively.  The provision for doubtful account  increased by $112,658 in 1996
as the General  Partners  determined  that  additional  provision  for  doubtful
accounts should be made to cover  potential  losses in REO accounts or potential
losses on unsecured  receivables  and  unspecified  losses.  The  provision  for
doubtful account was increased by $15,058 in 1997, to $434,495 as the selling of
REO accumulated primarily in the California recession of the early to mid 1990s
netted less  proceeds  than  originally  anticipated  and the  General  Partners
further  refinement of anticipated sales proceeds on remaining REO,  collections
of unsecured receivables,  and additional provisions for unspecified losses. The
Northern California recession reached bottom in 1993. Since then, the California
economy has been  improving,  slowly at first,  but now, more  vigorously.  This
improvement is reflective in increasing property values, in job growth, personal
income growth,  etc.,  which all translates into an improved real estate market,
solidifying   real  estate  values,   and  an  attractive  real  estate  lending
marketplace.

     The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto,  CA., with costs  totalling  $353,155 as of March 31, 1998,  has
been invested with that of two other  Partnerships in a partnership  which is in
the process of  obtaining  approval  for  constructing  approximately  63 single
family homes for sale. (The  Development).  The proposed  Development has gained
significant  public awareness.  Incorporated  into the proposed  Development are
various  mitigation  measures not limited to, mitigation of hazardous  materials
existing on the property, endangered species, and proximity to the San Francisco
Baylands.  The  preceding  issues and others  have  sparked  significant  public
controversy.  Opposition both for and against the proposed  Development  exists.
Notwithstanding  the above,  the General  Partners  believe  that pursuit of the
proposed  Development  approval to be in the interest of the  Partnership.  This
investment  has been  classified  in the  financial  statements as Investment in
Partnership.

     At the time of subscription to the  Partnership,  Limited  Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended December 31, 1995,  December 31, 1996, December 31, 1997, and three months
ended March 31, 1998, the Partnership made  distributions of earnings to Limited
Partners after allocation of syndication costs of, $262,450,  $327,887, $399,379
and $105,215  respectively.  Distribution of Earnings to Limited  Partners after
allocation of syndication costs for the years ended December 31, 1995,  December
31, 1996,  December  31,  1997,  and three months ended March 3, 1998 to Limited
Partners capital accounts and not withdrawn was $640,390,  $522,621,  $419,231,
and $96,405  respectively.  As of December 31, 1995, December 31, 1996, December
31, 1997, and March 31, 1998,  Limited  Partners  electing to withdraw  earnings
represented 36%, 44%, 53% and 54% of the Limited Partners capital.
<PAGE>


     The Partnership  also allows the Limited Partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
Partnership  Agreement).  For the years ended  December 31,  1995,  December 31,
1996,  December 31, 1997,  and three months  through  March 31, 1998,  $106,901,
$412,798, $475,348 and $95,864 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  investment  to raise  cash.  The  trend  the
Partnership is  experiencing in withdrawals by Limited  Partners  electing a one
year  liquidation  program  represents  a small  percentage  of Limited  Partner
capital as of December 31, 1995, December 31, 1996, December 31, 1997, and three
months to March 31, 1998,  respectively  and is expected by the General Partners
to commonly occur at these levels.

     Additionally,  for the years ended  December 31,  1995,  December 31, 1996,
December 31, 1997, and three months through March 31, 1998,  $97,801,  $318,902,
$737,568 and $225,607 respectively, were liquidated by Limited Partners who have
elected a  liquidation  program  over a period  of five  years or  longer.  This
ability to  withdraw  after five  years by  Limited  Partners  has the effect of
providing  Limited Partner  liquidity  which the General  Partners then expect a
portion of the Limited Partners to avail themselves of. This has the anticipated
effect of the Partnership growing, primarily through reinvestment of earnings in
years one through five. The General Partners expect to see increasing numbers of
Limited Partner withdrawals in years five through eleven, at which time the bulk
of those Limited Partners who have sought withdrawal have been liquidated. After
year eleven,  liquidation  generally subsides and the Partnership  capital again
tends to increase.

     Actual  liquidation  of both  capital  and  earnings  from year five (1994)
through year eight (1997) is shown hereunder:
<TABLE>

                                             Years ended December 31,

                          1994                   1995                  1996                  1997
<CAPTION>
                  -------------         --------------        --------------        --------------
<S>                   <C>                     <C>                   <C>                   <C>    
Earnings              $263,206                270,760               336,341               399,379
Capital              *$340,011                184,157               722,536             1,212,916
                  =============         ==============        ==============        ==============
Total                 $603,217               $454,917            $1,058,877            $1,612,295
                  =============         ==============        ==============        ==============
<FN>
* These amounts represent gross of early withdrawal penalties.
</FN>
</TABLE>
<PAGE>


COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     The Partnership has no officers or directors. The Partnership is managed by
the General Partners.  There are certain fees and other items paid to management
and related parties.

     A more  complete  description  of management  compensation  is found in the
Prospectus,  pages 12-13, under the section Compensation of the General partners
and the Affiliates,  which is incorporated  by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  General  Partners  and
Affiliates for services  rendered during the three months period ended March 31,
1998. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.

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

I Redwood Mortgage  Mortgage Servicing Fee for servicing 
                    Mortgage Investments                                $26,413

General Partners &/or
Affiliate           Asset Management Fee for  managing   
                     assets...........................                   $4,145
                                                  
                          
General Partners    1% interest in profits                                $2,036
                       

     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  Investments  paid by the  borrowers  and
                           not by the Partnership                      $35,152
                     

Redwood Mortgage           Processing   and  Escrow  Fees  for   services  in
                           connection  with  notary,   document  preparation,
                           credit  investigation,  and escrow fees payable by
                           the borrowers and not by  the Partnership    $1,127
                           ...............


     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. $8,794

<PAGE>

           MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF MARCH 31, 1998

                                              Partnership Highlights

Mortgage Investment to Value Ratios

First Trust Deeds                                              $7,675,193.84
Appraised Value of Properties *                                16,919,465.00
   Total Investment as a % of Appraisal                               45.36%

First Trust Deed Mortgage Investments                           7,675,193.84
Second Trust Deed Mortgage Investments                          5,442,151.49
Third Trust Deed Mortgage Investments                             719,550.34
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            -----------------
                                                              $14,036,896.87

First Trust Deeds due other Lenders                               15,382,681
Second Trust Deeds due other Lenders                                 979,402
Third Trust Deeds due other Lenders                                  142,858
                                                            -----------------

Total Debt                                                    $30,541,837.87

   Appraised Property Value *                                  51,139,122.00
   Total Investment as a % of Appraisal                               59.72%

Number of Mortgage Investments Outstanding                                62

Average Investment                                               $226,401.56
Average Investment as a % of Net Assets                                1.79%
Largest Investment Outstanding                                  1,050,000.00
Largest Investment as a % of Net Assets                                8.28%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 54.68%
Second Trust Deed Mortgage Investments                                38.77%
Third Trust Deed Mortgage Investments                                  5.13%
Fourth Trust Deed Mortgage Investments                                 1.42%
                                                             ----------------
Total                                                                100.00%

Mortgage Investments by Type of
Property                               Amount                    Percent

Owner Occupied Homes                  $1,112,229.84                    7.92%
Non Owner Occupied Homes               1,640,619.64                   11.69%
Apartments                             1,232,674.45                    8.78%
Commercial                            10,051,372.94                   71.61%
                                                             ----------------
                                  ------------------
Total                                $14,036,896.87                  100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 3

     *Values  used are the  appraisal  values  utilized at the time the mortgage
investment was consummated.
<PAGE>



Diversification by County

County                                         Total Loans          Percent

Alameda                                      $3,430,639.62           24.44%
San Francisco                                 1,912,173.75           13.62%
Santa Clara                                   1,826,829.55           13.02%
San Mateo                                     1,668,905.38           11.89%
Stanislaus                                    1,655,162.89           11.79%
Contra Costa                                  1,284,550.19            9.15%
Monterey                                        531,705.33            3.79%
Solano                                          524,382.96            3.74%
Sonoma                                          369,394.89            2.63%
El Dorado                                       274,178.59            1.95%
Sacramento                                      255,385.55            1.82%
Santa Cruz                                      131,010.41            0.93%
Ventura                                          91,000.00            0.65%
Shasta                                           81,577.76            0.58%
                                        -------------------      -----------

Total                                       $14,036,896.87          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.

<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, 1998

<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 12th day of May,
1998.


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 12th day of May, 1998.


Signature                           Title                            Date


/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell                 General Partner                 May 12, 1998


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell                 General Partner                 May 12, 1998



/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell            President of Gymno Corporation,     May 12, 1998
                              (Principal Executive Officer);
                              Director of Gymno Corporation


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell            Secretary/Treasurer of Gymno         May 12, 1998
                              Corporation (Principal Financial
                                and Accounting Officer);
                              Director of Gymno Corporation