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

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



For Period Ended               September 30, 1999
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
                           (Registrant's telephone number, including area code)

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

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


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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     Indicate the number of shares  outstanding of each of the issuer's class of
common stock, as of the latest date.


                               NOT APPLICABLE

<PAGE>
<TABLE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                         DECEMBER 31, 1998 (audited) and
                         SEPTEMBER 30, 1999 (unaudited)

                                     ASSETS


                                                                         Sept 30, 1999          Dec 31, 1998
                                                                          (unaudited)            (audited)
                                                                         --------------         -------------
<S>                                                                            <C>                   <C>
Cash                                                                           $339,588              $461,544
                                                                         --------------         -------------
Accounts receivable:


  Mortgage Investments, secured by deeds of trust                            11,581,881            13,209,186
  Accrued interest on Mortgage Investments                                      310,724               442,350
  Advances on Mortgage Investments                                               54,330                39,733
  Accounts receivables, unsecured                                               161,056               242,493
                                                                          -------------         -------------
                                                                             12,107,991            13,933,762

  Less allowance for doubtful accounts                                        1,069,251               787,042
                                                                           ------------         -------------
                                                                             11,038,740            13,146,720
                                                                           ------------         -------------

Real estate owned, acquired through foreclosure, held for sale                  327,529               397,396

 Partnership Interest                                                             5,956                     0
                                                                           ------------         -------------
                                                                            $11,711,813           $14,005,660
                                                                           ------------         -------------

                                         LIABILITIES AND PARTNERS' CAPITAL



Liabilities:

  Notes payable - bank line of credit                                            $450,000          $1,912,663
  Accounts payable and accrued expenses                                             2,551              12,547
  Deferred Interest                                                                     0             131,743
                                                                           --------------        ------------
                                                                                  452,551           2,056,953
                                                                           --------------        ------------
Partners' Capital

  Limited Partners' capital, subject to redemption (Note 4E):

     Net of formation loan receivable of $187,471 and $253,387 for

       1999, and 1998, respectively                                            11,247,284          11,936,729

  General Partners' capital                                                        11,978              11,978
                                                                           --------------        ------------
           Total Partners' Capital                                             11,259,262          11,948,707
                                                                           --------------        ------------
           Total Liabilities and Partners' Capital                            $11,711,813         $14,005,660
                                                                           --------------        ------------
</TABLE>


See accompanying notes to financial statements.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              STATEMENTS OF INCOME
   FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 and 1998 (unaudited)


<TABLE>
                                                     9 months         9 months          3 months         3 months
                                                      ended             ended            ended             ended
                                                     Sept 30,         Sept 30,          Sept 30,         Sept 30,
                                                   (unaudited)       (unaudited)      (unaudited)       (unaudited)
Revenues:
<S>                                                  <C>               <C>                <C>             <C>
    Interest on Mortgage Investments                 $1,323,660        $1,178,911         $421,475        $401,928
    Interest on bank deposits                             2,406             5,416            1,137           2,176
    Late charges                                         11,930            12,675              692           5,298
    Other                                                 6,063             8,308            1,995           2,450
                                                  -------------       -----------         --------         -------
                                                      1,344,059         1,205,310          425,299         411,852
                                                  -------------       -----------         --------         -------
Expenses:
    Interest on note payable - bank                     172,455           126,343           54,432          38,267
    Clerical costs through Redwood Mortgage Corp.        22,795            25,895            7,190           8,396
    Mortgage Servicing Fees                             109,209           104,456           23,305          45,457
    General Partner asset management fees                11,249            12,219            3,670           4,000
    Provision for doubtful accounts and losses
           acquired  through foreclosure                313,483           276,115          100,770          91,024
    Professional Services                                20,321            18,900              700             550
    Printing, supplies and postage                       10,012             8,620            2,351           2,349
    Other                                                 5,106             6,040            1,063           1,632
                                                  -------------       -----------         --------         -------
                                                        664,630           578,588          193,481         191,675
                                                  -------------       -----------         --------         -------
Net income                                             $679,429          $626,722         $231,818        $220,177
                                                  -------------       -----------         --------         -------
Net income:  to General Partners (1%)                    $6,794            $6,267           $2,318          $2,202
Net income:  to Limited Partners (99%)                  672,635           620,455          229,500         217,975
                                                  -------------       -----------         --------         -------
                                                       $679,429          $626,722         $231,818        $220,177
                                                  -------------       -----------         --------         -------
Net income per $1000 invested by Limited
  Partners for entire period:
  - where income is reinvested and compounded            $57.51            $48.66           $19.67          $17.13
                                                  -------------       -----------         --------         -------
  - where partner receives income in monthly             $56.09            $47.64           $19.54          $17.03
                                                  -------------       -----------         --------         -------

</TABLE>

See accompanying notes to Financial Statements

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
              THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)


<TABLE>

                                                                     PARTNERS' CAPITAL
                                                                 -------------------------
                                                                 LIMITED PARTNERS' CAPITAL
                                                                 -------------------------
                                            Capital
                                            Account              Unallocated         Formation
                                            Limited              Syndication            Loan
                                            Partners               Costs             Receivable           Total
                                           ---------             -----------         ----------          -------
<S>                                       <C>                   <C>               <C>              <C>
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             66,908            66,908
Net Income                                     838,105                   0                  0           838,105
Early withdrawal penalties                    (30,529)                   0             20,980           (9,549)
Partners' withdrawals                      (1,826,304)                   0                  0       (1,826,304)
                                             ---------           ---------           --------       -----------
Balances at December 31, 1998              $12,190,116                  $0         ($253,387)       $11,936,729

Formation Loan collections                           0                   0             55,880            55,880
Net Income                                     672,635                   0                  0           672,635
Early withdrawal penalties                    (14,604)                   0             10,036           (4,568)
Partners' withdrawals                      (1,413,392)                   0                  0       (1,413,392)
                                             ---------           ---------           --------       -----------
Balances at September 30, 1999             $11,434,755                  $0         ($187,471)       $11,247,284
                                             ---------           ---------           --------       ------------

</TABLE>

See accompanying notes to financial statements


<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
            FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
              THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)


<TABLE>
                                                             PARTNERS' CAPITAL
                                             ----------------------------------------------------
                                                         GENERAL PARTNERS' CAPITAL
                                             ----------------------------------------------------
                                                                       Unallocated                            Total
                                          Capital Account              Syndication                           Partners'
                                          General Partners                 Costs            Total             Capital
                                             -------------            ------------        ---------      -------------
<S>                                               <C>                     <C>             <C>             <C>
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              66,908
Net income                                           8,466                      0            8,466             846,571
Early withdrawal penalties                               0                      0                0             (9,549)
Partners' withdrawals                              (8,466)                      0          (8,466)         (1,834,770)
                                             -------------            -----------         --------       -------------
Balances at December 31, 1998                      $11,978                     $0          $11,978         $11,948,707

Formation Loan collections                               0                      0                0              55,880
Net  income                                          6,794                                   6,794             679,429
Early withdrawal penalties                               0                      0                0             (4,568)
Partners' withdrawals                              (6,794)                      0          (6,794)         (1,420,186)
                                             -------------            -----------         --------       -------------
Balances at September 30, 1999                     $11,978                     $0          $11,978         $11,259,262
                                             -------------            -----------         --------       -------------

</TABLE>


See accompanying notes to financial statements

<PAGE>


                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                             STATEMENTS OF CASH FLOWS
                                             FOR THE NINE MONTHS ENDED
                                            SEPTEMBER 30, 1999 AND 1998
                                                   (unaudited)


<TABLE>
                                                                          9 months ended        9 months ended
                                                                           Sept 30, 1999          Sept 30, 1998
                                                                            (unaudited)           (unaudited)
                                                                           ---------------       --------------
Cash flows from operating activities:
<S>                                                                               <C>                   <C>
  Net income                                                                      $679,429              $626,722
  Adjustments to reconcile net income to net cash provided by
      operating activities:
    Provision for doubtful accounts                                                258,478               346,920
    Provision for losses on real estate held for sale                               55,005                     0
    Early withdrawal penalty credited to income                                    (4,568)               (7,200)
  (Increase) decrease in assets:
    Accrued interest & advances                                                    117,029               241,754
  Increase (decrease) in liabilities:
    Accounts payable and accrued expenses                                          (9,996)                18,784
    Deferred interest on Mortgage Investments                                    (131,743)              (69,316)
                                                                           ---------------       ---------------
      Net cash provided by operating activities                                    963,634             1,157,664
                                                                           ---------------       ---------------
Cash flows from investing activities:
    Principal collected on mortgage investments                                  7,059,108             4,422,118
    Mortgage Investments made                                                  (5,431,803)           (5,499,170)
    Additions to Real Estate held for sale                                         (4,650)              (33,865)
    Dispositions of real estate held for sale                                      103,696               310,002
    Investment in partnership                                                      (5,956)               346,017
    Accounts receivable - Unsecured (Interest and proceeds)                         20,984                   825
                                                                           ---------------       ---------------
      Net cash provided by (used in) investing activities                        1,741,379             (454,073)
                                                                           ---------------       ---------------
Cash flows from financing activities:
  Increase (decrease) in note payable-bank                                     (1,462,663)               320,846
  Formation loan collections                                                        55,880                55,023
  Partners withdrawals                                                         (1,420,186)           (1,319,127)
                                                                           ---------------       ---------------
      Net cash provided by (used in) financing activities                      (2,826,969)             (943,258)
                                                                           ---------------       ---------------
Net increase (decrease) in cash                                                  (121,956)             (239,667)

Cash - beginning of period                                                         461,544               520,837
                                                                           ---------------       ---------------
Cash - end of period                                                              $339,588              $281,170
                                                                           ---------------       ---------------

</TABLE>


See accompanying notes to financial statements.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (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  Mortgage  Corp.,  an
affiliate of the General Partners.  At September 30, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for Limited Partners.

     A  minimum  of 2,500  units  ($250,000)  and a  maximum  of  120,000  units
($12,000,000)  were  offered  through  qualified  broker-dealers.   As  Mortgage
Investments were identified,  partners were transferred from applicant status to
admitted partners participating in Mortgage Investment operations.  Each month's
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  Corp., an affiliate of the
General Partners that arranges and services the Mortgage Investments. To finance
the  sales  commissions,  the  Partnership  was  authorized  to lend to  Redwood
Mortgage Corp., 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  Corp. had
borrowed  $914,369 from the Partnership to cover sales  commissions  relating to
$11,998,359 Limited Partner contributions  (7.62%).  Through September 30, 1999,
$726,898  including  $134,159  in early  withdrawal  penalties,  had been repaid
leaving  a  balance  of  $187,471.  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
Corp., the deduction from capital will be reduced.

B. Other Organizational and Offering Expenses

     Organizational  and offering expenses,  other than sales  commissions,  but
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, 1998(audited) AND
                         SEPTEMBER 30, 1999 (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 September 30, 1999 and at December 31, 1998, and 1997, reductions in the
cost of Mortgage Investments categorized as impaired by the Partnership totalled
$38,634,  $38,634,  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 September  30,
1999, the average mortgage investment to appraised value of security at the time
the Mortgage Investments were consummated was 64.70%. 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 property's estimated fair
value, less estimated costs to sell.

<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (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 September 30,1999, and December 31, 1998 and 1997:

                            September 30,      December 31,         December 31,
                                1999               1998                  1997
                            ------------       ------------         ------------
Costs of properties         $420,574            $765,986              $906,499
Reduction in value          (93,045)           (348,590)             (219,360)
REO prior lien                     0            (20,000)                     0
                            ------------       ------------         ------------
Fair value reflected in
 financial statements       $327,529            $397,396              $687,139

     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
Partnership's  financial position because the methods indicated were essentially
those previously used by the Partnership.

F. Investment in Partnership (see note 5)


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, other mortgage investments,  accrued interest and
advances on mortgage investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of September 30, 1999, and
December 31, 1998, and 1997 was as follows:

<PAGE>

                                          REDWOOD MORTGAGE INVESTORS VII
                                        (A California Limited Partnership)
                                           NOTES TO FINANCIAL STATEMENTS
                                          DECEMBER 31, 1998(audited) AND
                                          SEPTEMBER 30, 1999 (unaudited)


                                      September 30,  December 31,   December 31,
                                          1999          1998           1997
                                      ------------   -----------    ------------
Impaired Mortgage Investments          $38,634        $38,634               $0
Other Mortgage Investments             888,508        606,299          284,738
Accounts receivable, unsecured         142,109        142,109          140,000
                                      -----------    ----------     ------------
                                    $1,069,251       $787,042         $424,738
                                      -----------    ----------     ------------
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 selected other options.  However,  the net income per $1,000 average
invested  has  approximated  those  reflected  for those whose  investments  and
options have remained constant.

NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES

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

A. Mortgage Brokerage Commissions

     Redwood Mortgage Corp. receives mortgage brokerage commissions for services
in connection with the review, selection, evaluation,  negotiation and extension
of Mortgage  Investments  in an amount up to 12% of the principal  amount of the
Mortgage  Investments  through the period ending 6 months after the  termination
date of the offering.  Thereafter,  commissions  are limited to an amount not to
exceed 4% of the total Partnership assets per year. Such commissions are paid by
the borrowers, and are not an expense to the Partnership.

B. Mortgage Servicing Fees

     Redwood Mortgage Corp. 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 $109,209,  $83,559,
and $97,267 were  incurred for nine months  through  September  30, 1999 and for
years 1998 and 1997, respectively.

C. Asset Management Fee

     The General Partners  receive a monthly fee for managing the  Partnership's
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 were incurred for year 1997.
For nine months through  September 30, 1999, and for the year ended December 31,
1998,  management  fees of $11,249 and $16,141,  respectively,  were 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.
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (unaudited)

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  Corp.) are reimbursed by the  Partnership  for all operating  expenses
actually  incurred  by them on  behalf  of the  Partnership,  including  without
limitation,   out-of-pocket   general   and   administration   expenses  of  the
Partnership,  accounting and 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 are 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  Partnership's  Mortgage
Investment portfolio.

     Interest  earned prior to  admission  was credited to partners in applicant
status.  As  Mortgage  Investments  were made,  applicants'  subscriptions  were
transferred  to Limited  Partner status to begin sharing in income from Mortgage
Investments  secured by deeds of trust.  The interest  earned prior to admission
was either paid to the investors or transferred to Partners'  Capital along with
the original investment.

B. Term of the Partnership

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

C. Election to Receive Monthly, Quarterly or Annual Distributions

     Upon subscription,  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 in proportion
to their  respective  capital  accounts  after 1% is  allocated  to the  General
Partners.

<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (unaudited)

E. Liquidity, Capital Withdrawals and Early Withdrawals

     There  are  substantial   restrictions  on  transferability  of  Units  and
accordingly an investment in the Partnership is not liquid. Limited Partners had
no right to  withdraw  from the  Partnership  or to obtain  the  return of their
capital  account  for at least one year from the date of purchase of Units which
in all  instances  had occurred as of September  30, 1999. In order to provide a
certain degree of liquidity to the Limited  Partners after the one-year  period,
Limited  Partners may withdraw all or part of their  Capital  Accounts  from the
Partnership  in four  quarterly  installments  beginning  on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given,  subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount  withdrawn  early and will be deducted  from the Capital  Account.
Withdrawal  after the one-year  holding period and before the five-year  holding
period was permitted only upon the terms set forth above.

     After five years from the date of purchase of the Units,  Limited  Partners
have the  right  to  withdraw  from the  Partnership  on an  installment  basis,
generally  this is  done  over a five  year  period  in  twenty  (20)  quarterly
installments. Once a Limited Partner has been in the Partnership for the minimum
five year  period,  no penalty will be imposed if  withdrawal  is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal  period,  the General Partners may liquidate all or part of a Limited
Partner's capital account in four quarterly  installments  beginning on the last
day of the  calendar  quarter  following  the  quarter  in which  the  notice of
withdrawal  is given.  This  withdrawal  is  subject  to a 10% early  withdrawal
penalty  applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnership's  capacity  to return a Limited  Partner's
capital  account is restricted to the  availability  of  Partnership  cash flow.
Furthermore,  no more than 20% of the total Limited  Partners'  capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.

F. Guaranteed Interest Rate For Offering Period

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

NOTE 5 - INVESTMENT IN PARTNERSHIP

     The  Partnership's  interest in land  located in East Palo Alto,  CA.,  was
acquired through foreclosure.  The Partnership's interest was invested with that
of two other  Partnerships.  The Partnerships had been attempting to develop the
property into single family residences.  Significant  community  resistance,  as
well as environmental  and fish and wildlife concerns affected efforts to obtain
the required  approvals.  The  Partnership,  in resolving  disputes  which arose
during the course of the Partnership's attempt to obtain entitlements to develop
the property,  entered into agreements on May 8, 1998 with  Rhone-Poulanc,  Inc.
These agreements,  among other things,  restrict the property to non-residential
uses, provide for appropriate indemnifications,  and include other consideration
including the payment of cash. The Partnership  still retains  liability for the
remediation of pesticide contamination affecting the property.  Investigation of
remediation  options are ongoing.  At this time management does not believe that
remediation of the pesticide contaminants will have a material adverse effect on
the financial condition of the Partnership.


<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (unaudited)

                           NOTE 6 - LEGAL PROCEEDINGS

     Legal  actions  against  borrowers  and other  involved  parties  have been
initiated by the  Partnership to recover  payments  against  unsecured  accounts
receivable totalling $161,056 at September 30, 1999.

     The  Partnership,  along with  numerous  others,  including a developer,  a
contractor and other lenders, is named as a defendant in a lawsuit involving the
Partnership's  attempt to recover its investment in real estate acquired through
foreclosure.

     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  had 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, 1998, and December 31, 1997 were $1,912,663,  and
$2,341,816  respectively,  and the interest rate was 8.50% (8.00% prime + .50%).
This line of credit  expired in December,  1998,  but was  formally  extended to
March  31,  1999.  In  1999 a new  line  of  credit  was  secured  with  another
institution. The new borrowing limit is $3,500,000, at prime, plus .25% (8.25% +
 .25% = 8.50%). The balance outstanding as of September 30, 1999 was $450,000.

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:


                                      Sept. 30,       Dec. 31         Dec. 31
                                        1999           1998             1997
                                    -----------    -------------    ------------
Net assets - Partners' Capital
   per financial statements         $11,259,262      11,948,707      $12,879,547
Formation Loan receivable               187,471         253,387          341,275
Allowance for doubtful accounts       1,069,251         787,042          424,738
                                    -----------    -------------    ------------
Net assets tax basis                $12,515,984     $12,989,136      $13,645,560
                                    ===========    =============   =============

     In 1998,  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
$11,581,881.  The  September  30,  1999,  fair  value  of these  investments  of
$11,319,809  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, 1998(audited) AND
                         SEPTEMBER 30, 1999 (unaudited)

NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS

     The  Mortgage  Investments  are  secured  by  recorded  deeds of trust.  At
September  30, 1999,  there were 48 Mortgage  Investments  outstanding  with the
following characteristics:

Number of Mortgage Investments outstanding                                    48
Total Mortgage Investments outstanding                               $11,581,881

Average Mortgage Investment outstanding                                 $241,289
Average Mortgage Investment as percent of total                            2.08%
Average Mortgage Investment as percent of Partners' Capital                2.14%

Largest Mortgage Investment outstanding                               $1,500,000
Largest Mortgage Investment as percent of total                           12.95%
Largest Mortgage Investment as percent of Partners' Capital               13.32%

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

Largest percentage of Mortgage Investments in one county                  26.98%
Average Mortgage Investment to appraised value of security at
time Mortgage Investment was consummated                                  64.70%

Number of Mortgage Investments in foreclosure                                  1


     The following categories of mortgage investments are pertinent at September
30, 1999, and December 31, 1998, 1997:

                                  September 30     December 31     December 31
                                       1999           1998             1997
                                  ------------     -----------     -------------
First Trust Deeds                   $4,891,101      $8,638,976        $6,810,113
Second Trust Deeds                   4,924,230       4,188,401         5,719,369
Third Trust Deeds                    1,566,549         181,808           720,258
Fourth Trust Deeds                     200,001         200,001           200,001
                                  ------------     -----------     -------------
Total Mortgage Investments          11,581,881      13,209,186        13,449,741
Prior liens due other lenders       16,591,114      12,728,867        17,951,579
                                  ------------     -----------     -------------
  Total debt                       $28,172,995     $25,938,053       $31,401,320
                                  ------------     -----------     -------------
Appraised property value at time
  of loan                          $43,543,813     $42,393,561       $52,077,885
                                  ------------     -----------     -------------
Total investments as a percent of
   appraised Value                      64.70%          61.18%            60.30%
                                  ------------     -----------     -------------
Investments by Type of Property

Owner occupied homes                  $774,029        $746,334        $1,104,742
Non-Owner occupied homes             1,634,589       1,691,016         1,464,596
Apartments                             553,063         897,292         1,666,916
Commercial                           8,620,200       9,874,544         9,213,487
                                  ------------     -----------       -----------
                                   $11,581,881     $13,209,186       $13,449,741
                                  ============     ===========     =============
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                         DECEMBER 31, 1998(audited) AND
                         SEPTEMBER 30, 1999 (unaudited)

     Scheduled maturity dates of Mortgage  Investments as of September 30, 1999,
are as follows:

                        Year Ending
                        December 31,
                    --------------------
                            1999                                $2,103,816
                            2000                                 4,730,310
                            2001                                 4,084,000
                            2002                                   264,486
                            2003                                    64,047
                         Thereafter                                335,222
                                                             ===============
                                                               $11,581,881
                                                             ===============

     The  scheduled  maturities  for 1999 include  approximately  $2,012,816  in
eleven  Mortgage  Investments  which are past  maturity at  September  30, 1999.
Interest payment on most of these Mortgage Investments are current.

     Eleven Mortgage  Investments  with principal  outstanding of $1,655,227 had
interest  payments  overdue in excess of 90 days. Two Mortgage  Investments with
principal  outstanding  of $231,966  were  considered  impaired at September 30,
1999. That is interest accruals are no longer recorded thereon.

     The cash balance at September  30, 1999 of $339,588 was in three banks with
interest  bearing  balances  totalling  $291,983.  The  balances  exceeded  FDIC
insurance limits (up to $100,000 per bank) by $142,701.


<PAGE>

            MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           ----------------------------------------------------------
                            AND RESULTS OF OPERATIONS
                            -------------------------
     On September 30, 1992, the Partnership  had sold  119,983.59  units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
units of $100 each.  As of that date,  the  offering  was  formally  closed.  At
September 30, 1999, Partners' Capital totalled $11,259,262.

     At September 30, 1999, the  Partnership  Mortgage  Investments  outstanding
totalled $11,581,881. This represents a decrease of $1,627,305 from the December
31, 1998 Mortgage  Investments  balance.  This reduction in Mortgage Investments
outstanding  as of  September  30,  1999 was  chiefly due to the pay-off of some
substantially  larger notes during the third quarter. The proceeds from the note
pay-offs  were  used to  partially  pay down the line of  credit  which  shows a
decrease from June 30, 1999 balance. The ability of the Partnership to invest in
new Mortgage  Investments  during nine months  through  September 30, 1999,  was
partially  offset by  withdrawals  of income and capital by the  Partners in the
amount of $1,427,995 including early withdrawal penalties.  Mortgage Investments
increased  from  $12,036,293  from 1996 to  $13,449,741  in 1997, an increase of
$1,413,448.  This was  chiefly  due to the  ability of the  General  Partners to
reduce the net amounts  invested in real  estate  owned (REO)  during the twelve
months,  by increasing  bank credit line  borrowing to $2,341,816 as of December
31, 1997 from $1,175,000 as of December 31, 1996, and by reinvesting earnings of
$419,231.  Mortgage  Investments  decreased  slightly  from  $12,382,641  as  of
December 31, 1995, to $12,036,293 as of December 31, 1996. The Partnership began
funding Mortgage Investments on December 27, 1989, and as of September 30, 1999,
had credited the Partners' accounts with income at an average  annualized yield
of 7.75%.

     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 immediate  future,
interest  rates are expected to fluctuate only  slightly.  The General  Partners
cannot at this time predict at what levels interest rates will be in the future.
Although the rates  charged by the  Partnership  are  influenced by the level of
interest rates in the market,  the General Partners do not anticipate that rates
charged by the  Partnership  to its borrowers will change  significantly.  As of
September 30, 1999, the Partnership Real Estate Owned account and the investment
in Partnership  account have been reduced to $358,052 and $5,956,  respectively.
These accounts had combined balances of $397,396,  $1,033,156 and $1,710,739 for
the years  ended  December  31,  1998 and  1997,  and  1996,  respectively.  The
conversion of these non-earning  assets to income producing assets will generate
increased  income.  The  overall  effect of these  developments  will  allow the
Partnership to increase the annualized  yields paid by the Partnership in future
quarters.  The General  Partners  anticipate  that the annualized  yield for the
year, 1999, will be higher than the previous year.

     The  Partnership  has a line of credit (see Note 7).  This added  source of
funds helps to maximize 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 September  30,  1999,  the  Partnership  is current with its
interest payments on the line of credit. In 1996, interest payments decreased to
$127,454 reflecting the Partnership's overall smaller average outstanding credit
line balance due primarily to a large number of Mortgage Investment payoffs. For
the years ended  December  31, 1997 and 1998,  interest  paid was  $198,316  and
$170,867 respectively,  reflecting an overall greater average utilization of the
credit line from the previous three years.
<PAGE>
     The  Partnership's  income and  expenses,  accruals and  delinquencies  are
within the normal range of the General Partners' expectations,  based upon their
experience in managing  similar  partnerships  over the last  twenty-two  years.
Mortgage  Servicing  Fees  decreased  from $97,267 in 1996,  to $83,559 in 1997,
primarily due to timing of receipt of payments from borrowers and actual payment
of the Mortgage  Servicing  Fee.  Mortgage  Servicing  Fees increased in 1998 to
$128,493 due to an increase of the monthly loan  servicing  fee to 1/12% (1% per
year).  For nine months  through  September 30, 1999,  Mortgage  Servicing  Fees
incurred were  $109,209.  Asset  Management  Fees  increased  from $0 in 1997 to
$16,141 in 1998. Asset Management Fees for nine months ended September 30, 1999,
were  $11,249.  All other  expenses  fluctuated in a very close range except for
Interest on Note Payable - bank and Provision  for Doubtful  Accounts and losses
on Real  Estate  acquired  through  foreclosure.  Each of  these  are  discussed
elsewhere in this Management  Discussion and Analysis of Financial Condition and
Results of  Operations.  Borrower  foreclosures,  as set forth under  Results of
Operations,  are a normal  aspect  of  Partnership  operations  and the  General
Partners  anticipate that they will not have a material effect on liquidity.  As
of September 30, 1999, there was one property 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,  earnings and capital payout requirements.  Excess
cash  flow  will be  invested  in new  Mortgage  Investment  opportunities  when
available,  used to reduce  the  Partnership  credit  line or other  Partnership
business.

     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 possible swings and the General Partners' inability to control many
of these factors, actual results may differ significantly from estimates made by
the General Partners.  Management  provided  $419,437,  $434,495 and $423,054 as
provision for doubtful  accounts for the years ended December 31, 1996, 1997 and
1998,  respectively.   During  nine  months  through  September  30,  1999,  the
Partnership provided $313,483 for doubtful accounts.  The provision for doubtful
accounts  was  increased  to $434,495  in 1997as the selling of REO  accumulated
primarily in the  California  recession  of the early to mid 1990's  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 provision for
doubtful  accounts was  decreased by $11,441 to $423,054 in 1998.  This decrease
reflected  reduced expected REO anticipated  losses and improved  collections of
secured and unsecured receivables.

     The  September  23, 1999 issue of the San Mateo Times  published a new UCLA
Anderson forecast which focused on the California economy.  The General Partners
agree with their observations and predictions. The UCLA focus stated:

     "The  California  economy  will  grow at a  healthy  pace over the next two
decades,  but there is little chance of returning to the sustained economic boom
that carried the state during the first four decades following World War II.

     California's  economic  growth  will  be  limited  by the  consequences  of
population  growth:  high housing  costs,  traffic  congestion  and long commute
times,  according to the quarterly  forecast  released  Tuesday.  Looking at the
national  scene,  the forecast  predicted  the Federal  Reserve Board will raise
interest  rates  another  half  percent  over the next few  months and then hold
steady at 5.75  percent  through  2000 to  further  curb  inflation  risks.  The
increase will slow economic growth from 3.9 percent in 1999 to 2.5 percent.

     "This  forecast  is  for a  very  soft  landing",  the  forecast  said.  In
California,  employment  will grow by about 2.1 percent  annually  through 2020,
good for a cumulative increase of 50 percent.

     That rate contrasts with an average growth rate of 3.5 percent from 1950 to
1990, when the California economy depended heavily on the Cold War arms race and
expanding government space programs, said Tom Lieser,  executive director of the
Anderson Forecast and author of the report's California section.

     "A lot of that basically  fell from the sky so to speak",  Lieser said. "It
came from the defense budget right to our doorstep.  California was blessed with
conditions that made this the capital of the aerospace industry".
<PAGE>

     That market  changed in 1990 when the Cold War ended and  defense  spending
fell sharply.

     The United States fell into recession,  with California suffering more than
most other states. What eventually  emerged,  Lieser said, is an economy that is
more diverse and less vulnerable to the federal budget.

     "Now we have a market-driven  economy, which was built on the technological
specialization  that we had from  aerospace  and our  universities.  We build on
that, but we don't have to worry about that going away". he said.

     Aerospace employment peaked in the 1980s at 380,000, and fell to 165,000 by
1996 in the wake of the downsizing.  Aerospace  employment has  stabilized,  but
growth will be limited, the report said.

     The challenge of the next two decades will be to build  housing,  roads and
other infrastructure that sustained growth will require".

     To the Partnership, the above evaluation of the California economy means an
increase in property  values,  job growth,  personal  income  growth,  etc. This
translates into more loan activity, which is beneficial to the Partnership.

     The  Partnership's  interest  in land  located in East Palo  Alto,  Ca, was
acquired  through  foreclosure.  The  Partnership's  basis of $ 0,  $346,017 and
$242,394 for the years ended December 31, 1998, 1997 and 1996 respectively,  has
been  invested with that of two other  Partnerships.  The  Partnership  had been
attempting   to  develop  the  property   into  a   subdivision   consisting  of
approximately 63 residential units (the "Development"). The proposed Development
had gained  significant  public awareness as a result of certain  environmental,
fish and wildlife, population density, and other concerns. Incorporated into the
proposed Development were various mitigation measures which included remediation
of  hazardous  material  existing  on  the  property,   and  the  protection  of
potentially  affected  species due to the  proximity  of the property to the San
Francisco   Baylands.   These  issues  and  others  sparked  significant  public
controversy.  Opposition  against  and  support  for  the  proposed  Development
existed.  Among those in opposition to the project is Rhone Poulanc,  Inc. which
is responsible for a nearby hazardous waste site.  Rhone Poulanc,  Inc. has been
identified as the Responsible Party for the arsenic contamination which affected
a portion of the property. On May 8, 1998, the Partnership,  in order to resolve
disputes  which arose during the course of the  attempts to obtain  entitlements
for this Development,  entered into agreements with  Rhone-Poulanc,  Inc. which,
among other things,  restricted the property to non residential  uses,  provided
for appropriate  indemnification and included other  considerations  including a
cash payment to the Partnership.  The Partnership has retained  ownership of the
property,  which is subject to various deed  restrictions,  options and/or first
rights of refusal.  The General  Partners  are pleased  with this outcome to the
residential  development  attempt.  The General  Partners may now explore  other
available options with respect to alternative uses for the property. In order to
pursue these options,  rezoning of the property's  existing  residential  zoning
classification  will be  required.  The  Partnership  is  continuing  to explore
remediation  options  available to mitigate the  pesticide  contamination  which
affects the property.  This pesticide  contamination appears to be the result of
agricultural  operations  by  prior  owners  and is  unrelated  to  the  arsenic
contamination for which Rhone-Poulanc,  Inc. remains  responsible.  At this time
the  General   Partners  do  not  believe  that  remediation  of  the  pesticide
contaminants  will have a material adverse effect on the financial  condition of
the Partnership.

     At the time of subscription to the  Partnership,  Limited  Partners elected
whether to receive  monthly,  quarterly  or annual cash  distributions  from the
Partnership  or to compound  earnings in their capital  account.  If the Limited
Partner initially elected to receive monthly, quarterly or annual distributions,
such election,  once made, was  irrevocable.  However,  a Limited  Partner could
change his election regarding whether he wanted to receive such distributions on
a monthly,  quarterly or annual basis. If the Limited Partner  initially elected
to compound earnings in their capital account in lieu of cash distributions,  he
could, after five (5) years, change his election and receive monthly,  quarterly
or annual cash distributions.  Earning allocable to Limited Partners who elected
to compound  earnings in their capital  accounts are retained by the Partnership
for  making  further  Mortgage  Investments  or  for  other  proper  Partnership
purposes,  and such  amounts are being added to such Limited  Partners' capital
accounts. During the last three years and the nine month period ending September
30,  1999,  the  following   distribution  of  earnings,   after  allocation  of
syndication  costs,  were  made to the  Limited  Partners.  These  earnings  are
tabulated separately for compounding and distributing partners.


<PAGE>
                                                                     9 months
                         December 31,   December 31,  December 31,    through
                            1996          1997           1998      Sept 30, 1999
                         ------------   ------------  -----------  -------------
Compounding Partners      $514,167       $419,231       $381,747        $310,571
Distributing Partners     $336,341       $399,379       $456,358        $362,064
                          -----------   ------------  -----------  -------------
Total Earnings            $850,508       $818,610       $838,105        $672,635

     As of December  31, 1996,  December  31,  1997,  December 31, 1998 and nine
months  through  September  30,  1999,  Limited  Partners  electing  to withdraw
earnings  represented  36%,  44%,  53%,  54%  and 56% of the  Limited  Partners'
capital.

     The Partnership  also allows the Limited Partners to withdraw their capital
account  subject  to  certain   limitations  (see   liquidation   provisions  of
Partnership  Agreement).  For the three years and the nine month  period  stated
above,  capital  liquidation  subject to a 10%  penalty  and the normal  capital
liquidation for accounts to be paid over 5 years or more, distributed to Limited
Partners totalled:

                                                                     9 months
                     December 31,   December 31,  December 31,     through
                          1996           1997         1998    September 30, 1999
                   ------------     ----------  ------------    ----------------
Capital liquidation
 10% penalty          $403,634       $475,348      $381,458           $182,083
 no penalty           $318,902       $737,568    $1,019,017           $883,848
                   ------------   ------------  ------------       -------------
Total                 $722,536     $1,212,916    $1,400,475         $1,065,931

     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,  1996,  December  31,  1997,  December  31,  1998 and  September  30,  1999,
respectively  and is expected by the General Partners to commonly occur at these
levels.

     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 nine (1998),  and nine months through  September 30, 1999, is shown
hereunder:

                          Years ended December 31,
                         -------------------------
                    1994                    1995                    1996
               -------------            ------------             -------------
Earnings         $263,206                 270,760                 336,341
Capital*         $340,011                 184,157                 722,536
               ------------             ------------             -------------
Total            $603,217                $454,917              $1,058,877
               ------------             ------------             -------------

                                                                   9 months
                   1997                    1998                 through 9/30/99
               ------------             ------------             -------------
Earnings          399,379                 456,358                 362,064
Capital*        1,212,916               1,400,475               1,065,931
               -----------              ------------             -------------
Total          $1,612,295              $1,856,833              $1,427,995
               -----------              ------------             -------------

* These amounts represent gross of early withdrawal penalties.
<PAGE>

     The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing  computerized  operations.  The Partnership is completing
its assessment of Year 2000 hardware and software issues.  The hardware issue is
fully complete and tested.  The Partnership relies on Redwood Mortgage Corp., an
affiliate of the Partnership,  third party and software vendors for its computer
software. Major services provided to the Partnership by these companies are loan
servicing,  accounting and investor services. The software for loan servicing is
installed and is in compliance with Year 2000 issues. Installation of accounting
software that is Year 2000 compliant  began and was completed  during the second
quarter of 1999 and has been  tested  since that time.  The  investor  servicing
software  is still  being  modified,  however  software  maintenance  agreements
provide for Year 2000  compliance.  Additionally,  the Partnership has contacted
several outside vendors that provide investor services as a possible alternative
to providing  investor  services in house.  These service providers will be more
expensive  than the  current  in house  systems,  but they do  provide a back-up
alternative.  Reports  are being run  parallel  to insure  accuracy of Year 2000
compliance. This will continue through December 31, 1999.

     The costs of updating  the various  software  systems  will be borne by the
various  companies  that supply the  Partnership  with services.  Therefore,  no
significant  capital outlays are  anticipated  and the Partnership  expects only
incidental costs of conversion for Year 2000 issues.

     The Partnership is in the business of making Mortgage  Investments  secured
by real estate. The most important factor in making the Mortgage  Investments is
the value of the real estate  security.  Year 2000 issues have some potential to
affect  industries  and  businesses  located  in the  marketplaces  in which the
Partnership places its Mortgage  Investments.  This would only have an effect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy.  The fact that Silicon Valley is located in our marketplace,
there may be significant  increased  demand for Silicon Valley type services and
goods as companies make ready for the Year 2000 conversion.

     Although  almost  complete,  if any or all  accounting,  loan servicing and
investor  services   conversions   should  fail,  the  size  and  scope  of  the
Partnership's activities are such that a failure could be handled at an equal or
higher  cost.  This  could be done on a  manual  basis  or  outsourced  to other
servicers  existing in the industry,  while correcting  systems problems and are
likely to be temporarily in nature.  While this would entail some initial set up
costs,  these costs  would  likely not be so  significant  as to have a material
effect upon the Partnership.  Shifting portions of daily operations to manual or
outsourced  systems may result in time  delays,  which could  negatively  affect
customer  relations  and lead to the  potential  loss of new loans  and  Limited
Partner investments.

     The  foregoing  analysis  of  Year  2000  issues  includes  forward-looking
statements  and  predictions  about  possible  or  future  events,   results  of
operations  and  financial  condition.  As such,  this  analysis may prove to be
inaccurate  because of  assumptions  made by the General  Partners or the actual
development  of  future  events.  No  assurance  can be given  that any of these
statements  or  predictions   will  ultimately  prove  to  be  correct  or  even
substantially correct.

     Various  other  risks and  uncertainties  could  also  affect the Year 2000
analysis  causing a more severe effect on the Partnership  than discussed above.
The General  Partners Year 2000  compliance  testing  cannot  guarantee that all
computer  systems will function  without error beyond the Year 2000.  Risks also
exist with respect to Year 2000  compliance by external  parties who may have no
relationship  to the  Partnership  or  the  General  Partners,  but  who  have a
significant  relationship with one or more third parties,  and may have a system
failure that adversely  affects the  Partnership's  ability to conduct business.
While the General Partners are attempting to identify such external parties,  no
assurance can be given that it will be able to do so.

     Furthermore,  third parties with direct relationships with the Partnership,
whose  systems have been  identified  as likely to be Year 2000  compliant,  may
suffer a breakdown due to unforeseen circumstances. It is also possible that the
information collected by the General Partners' for these third parties regarding
their compliance with Year 2000 issues may be incorrect.  Finally,  it should be
noted that the  foregoing  discussion  of Year 2000 issues  assumes  that to the
extent  the  General  Partners  systems  fail,  whether  because  of  unforeseen
complications  or  because  of  third  parties'  failure,  switching  to  manual
operations will allow the Partnership to continue to conduct its business. While
the  General  Partner  believes  this  assumption  to  be  reasonable,  if it is
incorrect,  the  Partnerships  results of operations  would likely be adversely
affected.

<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 their 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 nine month period ended  September
30,  1999.  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
--------------------------------------------------------------------------------
I.

Redwood Mortgage      Mortgage Servicing Fee for
Corp.                 servicing Mortgage Investments ...................$109,209

General Partners &/or
Affliates             Asset Management Fee for
                      managing assets....................................$11,249

General Partners      1% interest in profits..............................$6,794

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
Corp.                with the review, selection, evaluation, negotiation, and
                     extension of the Mortgage Investments paid by the borrowers
                     and not by the Partnership.........................$130,463

Redwood Mortgage     Processing  and Escrow  Fees for  services  in  connection
 Corp.               with notary, docyment preparation, credit investigation,
                     and escrow fees payable by the borrowers and not by the
                     Partnership..........................................$3,408


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..........................................$22,795


<PAGE>

       MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1999

                       Partnership Highlights
-------------------------------------------------------------------------------
Mortgage Investment to Value Ratios

First Trust Deeds                                              $4,891,100.96
Appraised Value of Properties *                                 8,073,973.00
   Total Investment as a % of Appraised Value                         60.58%

First Trust Deed Mortgage Investments                           4,891,100.96
Second Trust Deed Mortgage Investments                          4,924,229.99
Third Trust Deed Mortgage Investments                           1,566,548.71
Fourth Trust Deed Mortgage Investments  **                        200,001.20
                                                            ----------------
                                                              $11,581,880.86

First Trust Deeds due other Lenders                            14,596,768.00
Second Trust Deeds due other Lenders                            1,851,488.00
Third Trust Deeds due other Lenders                               142,858.00
                                                            ----------------
Total Debt                                                    $28,172,994.86

   Appraised Property Value *                                  43,543,813.00
   Total Investment as a % of Appraised Value                         64.70%

Number of Mortgage Investments Outstanding                                48

Average Investment                                               $241,289.18
Average Investment as a % of Net Assets                                2.14%
Largest Investment Outstanding                                  1,500,000.00
Largest Investment as a % of Net Assets                               13.32%

Loans as a Percentage of Total Mortgage Investments

First Trust Deed Mortgage Investments                                 42.23%
Second Trust Deed Mortgage Investments                                42.52%
Third Trust Deed Mortgage Investments                                 13.52%
Fourth Trust Deed Mortgage Investments                                 1.73%
                                                            ----------------
Total                                                                100.00%

Mortgage Investments by Type of

Owner Occupied Homes                    $774,029.29                    6.68%
Non Owner Occupied Homes               1,634,588.46                   14.11%
Apartments                               553,062.84                    4.78%
Commercial                             8,620,200.27                   74.43%
                                      -------------         ----------------
Total                                $11,581,880.86                  100.00%

Statement of Conditions of Mortgage Investments
         Number of Mortgage Investments in Foreclosure                 1

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

<PAGE>


Diversification by County


County                                         Total Loans          Percent

Stanislaus                                   $3,124,456.60           26.98%
San Mateo                                     3,016,090.05           26.04%
Santa Clara                                   1,712,387.34           14.79%
San Francisco                                 1,289,242.93           11.13%
Contra Costa                                    741,077.83            6.40%
Alameda                                         721,642.91            6.23%
Marin                                           370,388.39            3.20%
Sonoma                                          158,736.30            1.37%
Sacramento                                      111,981.41            0.97%
Ventura                                          91,000.00            0.79%
Shasta                                           80,451.27            0.69%
Monterey                                         77,077.39            0.66%
Santa Cruz                                       46,376.24            0.40%
Solano                                           40,972.20            0.35%
                                             -------------       ----------
Total                                       $11,581,880.86          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 of this loan
is 76.52%.  The  borrower  is paying a fixed  interest  rate of 12.25%,  and 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 have 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 three month period
                                    ending September 30, 1999

<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 10th day of
November, 1999.

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 10th day of November, 1999.



Signature                          Title                                Date
---------                          -----                                ----
/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell          General Partner                    November 10, 1999
---------------------------------


/s/ Michael R. Burwell
----------------------------------
Michael R. Burwell          General Partner                    November 10, 1999


/s/ D. Russell Burwell
---------------------------------
D. Russell Burwell          President of Gymno Corporation,    November 10, 1999
                            (Principal Executive Officer);
                            Director of Gymno Corporation

/s/ Michael R. Burwell
--------------------------------
Michael R. Burwell          Secretary/Treasurer of Gymno       November 10, 1999
                            Corporation (Principal Financial
                            and Accounting Officer); Director
                            of Gymno Corporation


<PAGE>