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

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


For Period Ended              June 30, 1997
---------------------------------------------------- --------------------------
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)

                                 (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>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 (audited)
                         and JUNE 30, 1997, (unaudited)
<CAPTION>

                                     ASSETS
                                                                           June 30, 1997         Dec 31, 1996
                                                                            (unaudited)           (audited)
                                                                           ---------------      ---------------

<S>                                                                              <C>                  <C>     
Cash                                                                             $452,811             $755,089
                                                                           ---------------      ---------------

Accounts receivable:
  Mortgage Investments, secured by deeds of trust                              14,281,984           12,036,293
  Accrued Interest on Mortgage Investments                                        350,387              264,495
  Advances on Mortgage Investments                                                 44,178               41,203
  Accounts receivables, unsecured                                                 336,075              337,242
                                                                           ---------------      ---------------
                                                                               15,012,624           12,679,233
  Less allowance for doubtful accounts                                            379,740              228,647
                                                                           ---------------      ---------------

                                                                               14,632,884           12,450,586
                                                                           ---------------      ---------------

Real estate owned, acquired through foreclosure, held for sale                    909,542            1,468,345
Investment in partnership                                                         277,822              242,394

Formation loan due from Redwood Mortgage                                          376,872              429,163
                                                                           ---------------      ---------------

                                                                              $16,649,931          $15,345,577
                                                                           ===============      ===============


                                         LIABILITIES AND PARTNERS CAPITAL


Liabilities:
  Notes payable - bank line of credit                                          $3,000,000          $1,175,000
  Accounts payable and accrued expenses                                             5,449               1,472
  Deferred Interest                                                                     0             154,598
                                                                            --------------      --------------
                                                                                3,005,449           1,331,070

Partners Capital                                                               13,644,482          14,014,507
                                                                            --------------      --------------

                                                                              $16,649,931         $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 SIX AND THREE MONTHS ENDED JUNE 30, 1997
                                               AND 1996 (unaudited)

<CAPTION>
                                            6 months ended    6 months ended    3 months ended     3 months ended
                                            June 30, 1997     June 30, 1996     June 30, 1997      June 30, 1996
                                              (unaudited)      (unaudited)       (unaudited)      (unaudited)

Revenues:
<S>                                              <C>                <C>              <C>               <C>     
    Interest on mortgage loans                   $766,499           $746,876         $398,159          $372,258
    Interest on bank deposits                       3,593              2,851            2,196             2,183
    Late Charges                                    2,926              8,366            1,832             4,198
    Miscellaneous                                   8,956              6,165            4,825             2,645
                                              ------------      -------------     ------------     -------------

                                                  781,974            764,258          407,012           381,284
                                              ------------      -------------     ------------     -------------
Expenses:
    Interest on note payable-bank                  82,814             88,659           59,279            46,112
    Mortgage Servicing Fee                         31,628             32,733           16,130            15,522
    Amortization of organization costs                  0                368                0                 0
    Clerical costs through Redwood Mortgage        19,336             20,294            9,563            10,512
    Professional Fees                              19,726             17,164            6,350             1,062
    Provision for doubtful accounts and
losses on
      real estate acquired through                201,322            157,661          104,204            91,991
foreclosure
    Printing, Supplies and Postage                  5,480              6,720            3,378             4,514
    Other                                           3,769              4,384               57                31
                                              ------------      -------------     ------------     -------------

                                                  364,075            327,983          198,961           169,744
                                              ------------      -------------     ------------     -------------

Net income                                       $417,899           $436,275         $208,051          $211,540
                                              ============      =============     ============     =============

Net income:  to General Partners (1%)              $4,179             $4,363           $2,081            $2,116
Net income:  to Limited Partners (99%)           $413,720           $431,912         $205,970          $209,424
                                              ============      =============     ============     =============
                                                 $417,899           $436,275         $208,051          $211,540
                                              ============      =============     ============     =============

Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and                 $29.96             $29.64           $14.89            $14.72
compounded
                                              ------------      -------------     ------------     -------------
  - where partner receives income in monthly
       distributions                               $29.59             $29.28           $14.82            $14.65
                                              ------------      -------------     ------------     -------------

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

<TABLE>
                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                             STATEMENTS OF CASH FLOWS
<CAPTION>
                              FOR SIX MONTHS ENDED JUNE 30, 1997 and 1996 (unaudited)

                                                                     June 30, 1997         June 30, 1996
                                                                      (unaudited)           (unaudited)

Cash flows from operating activities:

<S>                                                                         <C>                  <C>     
  Net income                                                                $417,899             $436,275
  Adjustments to reconcile net income to net cash provided by
       operating activities:
    Amortization of organization costs                                             0                  368
    Provision for doubtful accounts                                          201,322              107,661
    Provision for losses on real estate held for sale                              0               50,000
    (Increase) decrease in accrued interest and advances                    (88,867)             (83,015)
    Increase (decrease) in accounts payable and accrued expenses               3,977                    0
    Increase (decrease) in deferred interest on Mortgage Investments       (154,598)                    0
                                                                        -------------       --------------

  Net cash provided by operating activities                                  379,733              511,289
                                                                        -------------       --------------

Cash flows from investing activities:

       Principal collected on mortgage investments                         2,666,905            6,007,554
       Mortgage investments made                                         (4,912,596)          (5,780,954)
       Formation loan collections                                             52,291               52,886
       Additions to Real Estate held for sale                              (487,579)            (311,410)
       Dispositions of real estate held for sale                             996,153               37,556
       Accounts receivable - unsecured                                         1,167               71,133
       Investment in partnership                                            (35,428)                    0
                                                                        -------------       --------------

          Net cash provided by (used in) investing activities            (1,719,087)               76,765
                                                                        -------------       --------------

Cash flows from financing activities:

       Net increase (decrease) in note payable-bank                        1,825,000                (500)
       Early withdrawal penalties                                           (18,311)              (8,942)
       Partners withdrawals                                               (769,613)            (385,388)
                                                                        -------------       --------------

           Net cash provided by (used in) financing activities             1,037,076            (394,830)
                                                                        -------------       --------------

Net increase (decrease) in cash                                            (302,278)              193,224
Cash - beginning of period                                                   755,089              514,840
                                                                        =============       ==============
Cash - end of period                                                        $452,811             $708,064
                                                                        =============       ==============


<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 SIX MONTHS ENDED JUNE 30, 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 December 31, 1996        $11,978         $14,002,529                 $0       $14,014,507

Net income                             4,179             413,720                  0           417,899
Allocation of Syndication                  0                   0                  0                 0
Costs
Early withdrawal penalties                 0            (18,311)                  0          (18,311)
Partners  withdrawals                (4,179)           (765,434)                  0         (769,613)
                                 ------------      --------------      -------------      ------------

Balance at June 30, 1997             $11,978         $13,632,504                 $0       $13,644,482
                                 ============      ==============      =============      ============


<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
                            JUNE 30, 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 ten
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 June 30, 1997,  $537,497 including $84,420 in early withdrawal
penalties, had been repaid leaving a balance of $376,872.

     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

A. Accrual Basis

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

<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

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 loans.

     At June 30, 1997,  and at December 31, 1996,  and 1995,  reductions  in the
cost of loans  categorized  as  impaired  by the  Partnership  totalled  $9,595,
$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 June 30, 1997,
the average  mortgage  investment to appraised value of security at the time the
loans  were  consummated  was  64.71%.  When a loan  is  valued  for  impairment
purposes, an updating is made in the valuation of collateral security.  However,
such a low loan to value ratio tends to minimize reductions for impairment.

D. Cash and Cash Equivalents

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

E. Real Estate Owned, Held for Sale

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

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (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 June 30, 1997, and December 31, 1996:

                                       June 30,                   Dec. 31,
                                       1997                       1996
                                  ---------------            ---------------

Cost of properties                    $1,109,542                 $1,655,786
Reduction in value                       200,000                    187,441
                                    ---------------           ---------------
                                  
                                        $909,542                 $1,468,345
                                    ===============            ===============

     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.

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 June
30, 1997, and December 31, 1996 were as follows:

                                           June 30,             December 31,
                                            1997                  1996
                                         -------------         -------------
Impaired mortgage investments              $9,595                $9,595
Unspecified mortgage investments          170,145                19,052
Amounts receivable, unsecured             200,000               200,000
                                         -------------          ------------
                                         $379,740              $228,647
                                         =============          ============

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, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

K. Reclassifications

     Certain  reclassifications not affecting net income have been made to prior
year amounts to conform to the current year presentation.

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.

     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 is paid to Redwood  Mortgage.  Mortgage  servicing fees of
$31,628,  $97,267, and $33,394 were incurred for the six months through June 30,
1997, and for years 1996, and 1995, respectively.

     C. Asset  Management  Fees The General  Partners  receive  monthly fees 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).  Management  fees of $0,
were incurred for the six months  through June 30, 1997, and for years 1996, and
1995, respectively.

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

     E.  Income  and Losses All income 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.   Such  reimbursements  are  reflected  as  expenses  in  the
Statements of Income.

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

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 loan 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
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.
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

     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, 1993, and thereafter actual realization  exceeded
the guaranteed amount each month. This guarantee is now no longer applicable.

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The Partnerships  interest in land, acquired through foreclosure,  located
in East Palo Alto with costs  totalling  $277,822 has been invested with that of
two other Partnerships (total cost to date,  primarily land, of $1,171,185) 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 $336,075 at June 30, 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 June 30,  1997,  were  $1,175,000  and
$3,000,000 respectively, and the interest rate at June 30, 1997 was 9.00% (8.50%
prime + .50%).
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

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>

                                                                            June 30,                 December 31,
                                                                              1997                       1996
                                                                         ----------------           ----------------
<S>                                                                          <C>                        <C>        
Net assets Partners  Capital per financial statements                        $13,644,482                $14,014,507
Allowance for doubtful accounts                                                  379,740                    228,647
                                                                                                    ----------------
                                                                         ================
Net assets tax basis                                                         $14,024,222                $14,243,154
                                                                         ================           ================
</TABLE>

     In 1996,  approximately  69% 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
$14,281,984. The June 30, 1997 fair value of these investments of $14,240,106 is
estimated  based upon projected cash flows  discounted at the estimated  current
interest rates at which similar loans would be made.  The  applicable  amount of
the allowance  for doubtful  accounts  along with accrued  interest and advances
related  thereto  should also be considered in evaluating  the fair value versus
the carrying value.

<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)

NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The Mortgage  Investments  are secured by recorded deeds of trust.  At June
30, 1997,  there were 66 Mortgage  Investments  outstanding  with the  following
characteristics:
<TABLE>

<S>                                                                                                       <C>
Number of Mortgage Investments outstanding                                                                66
Total Mortgage Investments outstanding                                                           $14,281,984

Average Mortgage Investment outstanding                                                             $216,394
Average Mortgage Investment as percent of total                                                        1.52%
Average Mortgage Investment as percent of Partners Capital                                            1.59%

Largest Mortgage Investment outstanding                                                           $1,400,000
Largest Mortgage Investment as percent of total                                                        9.80%
Largest Mortgage Investment as percent of Partners Capital                                           10.26%

Number of counties where security is located(all California)                                              16

Largest percentage of Mortgage Investments in one county                                              20.74%
Average Mortgage Investment to appraised value of security at time loan was consummated               64.71%
</TABLE>

Number of Mortgage Investments in foreclosure                               4

     The following  categories of mortgage investments are pertinent at June 30,
1997, and December 31, 1996:
<TABLE>

                                                                        June 30,               December 31,
                                                                          1997                     1996
                                                                    -----------------          --------------
<S>                                                                       <C>                     <C>       
First Trust Deeds                                                         $5,683,840              $4,199,552
Second Trust Deeds                                                         7,676,531               6,913,853
Third Trust Deeds                                                            721,612                 722,887
Fourth Trust Deeds                                                           200,001                 200,001
                                                                    -----------------          --------------
  Total mortgage investments                                              14,281,984              12,036,293
Prior liens due other lenders                                             21,969,730              22,068,554
                                                                    -----------------
                                                                                               ==============
  Total debt                                                             $36,251,714             $34,104,847
                                                                    =================          ==============

Appraised property value at time of loan                                 $56,021,569             $51,863,991
                                                                    =================          ==============

Total investments as a percent of appraisals                                  64.71%                  65.76%
                                                                    =================          ==============

Investments by Type of Property

Owner occupied homes                                                      $1,505,619              $1,742,767
Non-Owner occupied homes                                                     845,948               1,112,274
Apartments                                                                 2,580,680               1,325,872
Commercial                                                                 9,349,737               7,855,380
                                                                    =================          ==============
                                                                         $14,281,984             $12,036,293
                                                                    =================          ==============
</TABLE>
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1996 (audited) and
                            JUNE 30, 1997 (unaudited)




     Scheduled maturity dates of mortgage investments as of June 30, 1997 are as
follows:

                       Period Ending
                        December 31,
                     -------------------

                            1997                                   $2,543,741
                            1998                                    3,176,480
                            1999                                    2,249,560
                            2000                                    1,029,619
                            2001                                    1,076,631
                         Thereafter                                 4,205,953
                                                                ===============
                                                                   $14,281,984
                                                                ===============

     The scheduled maturities for 1997 include approximately $1,467,613 in loans
which are past maturity at December 31, 1996.  Interest payment on most of these
loans are current.  $199,037 of those loans were  categorized as delinquent over
90 days.

     Three loans with principal  outstanding  of $473,215 had interest  payments
overdue in excess of 90 days. Two loans had impaired provisions totalling $9,595
at June 30, 1997.

     The cash  balance  at June 30,  1997 of  $452,811  was in one bank  with an
interest  bearing  balance  totalling  $357,299.   The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $352,811.
<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 June
30, 1997, Partners Capital totaled $13,644,482.

     The Partnership began funding Mortgage Investments on December 27, 1989 and
as of June 30, 1997 had credited the Partners accounts with income at an average
annualized (compounded) yield of 8.02%.

     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 6.08%.

     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 $3,000,000.
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 June 30, 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 June 30, 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                             $31,628



General Partners     Asset Management Fee for managing assets         $0
 &/or Affiliates

General Partners     1% interest in profits, losses and distributions
                     of cash available for distribution                $4,179


     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.                      $195,416

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                                        $2,793

     II. 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>

            MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF JUNE 30, 1997

                                              Partnership Highlights

Mortgage Investment to Value Ratios

First Trust Deeds                                              $5,683,839.97
Appraised Value of Properties *                                11,632,935.00
   Total Investment as a % of Appraisal                               48.86%

First Trust Deed Mortgage Investments                           5,683,839.97
Second Trust Deed Mortgage Investments                          7,676,530.56
Third Trust Deed Mortgage Investments                             721,611.88
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            -----------------
                                                              $14,281,983.61

First Trust Deeds due other Lenders                            20,847,470.00
Second Trust Deeds due other Lenders                              979,402.00
Third Trust Deeds due other Lenders                               142,858.00
                                                            -----------------

Total Debt                                                    $36,251,713.61

   Appraised Property Value *                                  56,021,569.00
   Total Investment as a % of Appraisal                               64.71%

Number of Mortgage Investments Outstanding                                66

Average Investment                                               $216,393.69
Average Investment as a % of Net Assets                                1.59%
Largest Investment Outstanding                                  1,400,000.00
Largest Investment as a % of Net Assets                               10.26%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 39.80%
Second Trust Deed Mortgage Investments                                53.75%
Third Trust Deed Mortgage Investments                                  5.05%
Fourth Trust Deed Mortgage Investments                                 1.40%
                                                             ----------------
Total                                                                100.00%

Mortgage Investments by Type of
Property                               Amount                    Percent

Owner Occupied Homes                  $1,505,618.71                   10.54%
Non Owner Occupied Homes                 845,948.22                    5.92%
Apartments                             2,580,679.95                   18.07%
Commercial                             9,349,736.73                   65.47%
                                                             ----------------
                                  ------------------
Total                                $14,281,983.61                  100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 4

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

<PAGE>


Diversification by County

County                                         Total Loans          Percent


Alameda                                      $2,961,368.62           20.74%
San Francisco                                 2,618,782.73           18.34%
Santa Clara                                   2,495,411.23           17.47%
Stanislaus                                    1,665,745.47           11.66%
San Mateo                                     1,509,096.01           10.57%
Contra Costa                                  1,290,822.03            9.04%
Sonoma                                          370,365.33            2.59%
Monterey                                        335,932.05            2.35%
El Dorado                                       274,178.59            1.92%
Sacramento                                      273,062.01            1.91%
Santa Barbara                                   122,039.62            0.85%
Solano                                          104,583.15            0.73%
Ventura                                          91,000.00            0.64%
Shasta                                           82,086.69            0.58%
Marin                                            62,716.85            0.44%
 Santa Cruz                                      24,793.23            0.17%
                                        -------------------      -----------

Total                                       $14,281,983.61          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 June 30, 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 12th day of
August, 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 12th day of August, 1997.


Signature                              Title                        Date


/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell                     General Partner          August 12, 1997


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell                     General Partner          August 12, 1997



/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell             President of Gymno Corporation,  August 12, 1997
                               (Principal Executive Officer);
                               Director of Gymno Corporation


/s/ Michael R. Burwell
---------------------------------
Michael R. Burwell              Secretary/Treasurer of Gymno    August 12, 1997
                                Corporation (Principal Financial
                                and Accounting Officer);
                                Director of Gymno Corporation