10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from ___________ to _____________

Commission File Number: 000-27816

REDWOOD MORTGAGE INVESTORS VIII,

a California Limited Partnership

(Exact name of registrant as specified in its charter)

California	94-3158788
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(650) 365-5341

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

1

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES    [   ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] YES    [   ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]	Accelerated filer [   ]
Non-accelerated filer   [   ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[   ] YES    [X] NO

2

Part I –FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Balance Sheets

September 30, 2011 (unaudited) and December 31, 2010 (audited)

(in thousands)

ASSETS

	September 30,			December 31,
	2011			2010
Cash and cash equivalents	$	3,492		$	7,054
Loans
Secured by deeds of trust, net of discount of $2,881 at December 31, 2010
Principal		97,230			202,134
Advances		7,140			18,190
Accrued interest		5,193			13,119
Unsecured		52			85
Allowance for loan losses		(34,129	)		(89,200	)
Net loans		75,486			144,328
Real estate owned (REO)
Held for sale		61,220			54,206
Held as investment, net		160,744			115,411
REO, net		221,964			169,617
Receivable from affiliate		331			18
Other assets, net		1,105			971
Total assets	$	302,378		$	321,988

LIABILITIES AND CAPITAL

Liabilities
Bank loan, secured	$	26,750		$	50,000
Mortgages payable		44,414			36,270
Accounts payable		7,440			2,609
Deferred revenue		109			109
Payable to affiliate		1,016			973
Total liabilities		79,729			89,961
Capital
Partners’ capital
Limited partners’ capital, subject to redemption, net		219,441			228,193
General partners’ capital (deficit), net		(811	)		(734	)
Total partners’ capital		218,630			227,459
Non-controlling interest		4,019			4,568
Total capital		222,649			232,027
Total liabilities and capital	$	302,378		$	321,988

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

3

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2011 and 2010

(in thousands, except for per limited partner amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenue, net
Interest income
Loans	$	435		$	1,151		$	1,735		$	6,169
Imputed interest on formation loan		97			135			301			424
Other interest income		2			5			4			44
Total interest income		534			1,291			2,040			6,637
Interest expense
Bank loan, secured		528			815			1,888			2,625
Mortgages payable		348			430			1,673			761
Amortization of discount on formation loan		97			135			301			424
Total interest expense		973			1,380			3,862			3,810
Net interest income/(expense)		(439	)		(89	)		(1,822	)		2,827
Late fees		5			8			9			36
Other		1			31			5			38
Total revenues, net		(433	)		(50	)		(1,808	)		2,901
Provision/(recovery) for loan losses		983			24,977			(279	)		37,279
Operating Expenses
Mortgage servicing fees		1,098			373			2,371			1,259
Asset management fees		225			301			712			911
Costs from Redwood Mortgage Corp.		305			111			871			335
Professional services		179			320			701			1,102
REO
Rental operations, net		(406	)		(713	)		(1,223	)		(579	)
Holding costs		198			155			1,003			488
Loss/(gain) on disposal		(82	)		14			(28	)		575
Impairment loss/(gain)		59			(138	)		1,652			(49	)
Other		93			(43	)		107			57
Total operating expenses		1,669			380			6,166			4,099
Net income (loss)	$	(3,085	)	$	(25,407	)	$	(7,695	)	$	(38,477	)
Net income (loss)
Limited partners (99%)	$	(3,054	)	$	(25,153	)	$	(7,618	)	$	(38,092	)
General partners (1%)		(31	)		(254	)		(77	)		(385	)
	$	(3,085	)	$	(25,407	)	$	(7,695	)	$	(38,477	)
Net income (loss) per $1,000 invested by
limited partners for entire period
Where income is reinvested	$	(13	)	$	(73	)	$	(30	)	$	(112	)
Where partner receives income in monthly distributions	$	(12	)	$	(78	)	$	(30	)	$	(118	)

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

4

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Changes in Partners’ Capital

For the Nine Months Ended September 30, 2011

(in thousands) (unaudited)

	Limited Partners
	Capital									Total
	Account			Unallocated			Formation			Limited
	Limited			Syndication			Loan,			Partners’
	Partners			Costs			Gross			Capital
Balance, December 31, 2010	$	238,581		$	(1,016	)	$	(9,372	)	$	228,193
Formation loan payments received		—			—			872			872
Net income (loss)		(7,618	)		—			—			(7,618	)
Allocation of syndication costs		(262	)		262			—			—
Withdrawals		(2,006	)		—			—			(2,006	)
Early withdrawal penalties		—			—			—			—
Balance, September 30, 2011	$	228,695		$	(754	)	$	(8,500	)	$	219,441

	General Partners
	Capital/						Total
	(Deficit)						General
	Account			Unallocated			Partners’			Total
	General			Syndication			Capital/			Partners’
	Partners			Costs			(Deficit)			Capital
Balance, December 31, 2010	$	(724	)	$	(10	)	$	(734	)	$	227,459
Formation loan payments received		—			—			—			872
Net income (loss)		(77	)		—			(77	)		(7,695	)
Allocation of syndication costs		(2	)		2			—			—
Withdrawals		—			—			—			(2,006)
Early withdrawal penalties		—			—			—			—
Balance, September 30, 2011	$	(803	)	$	(8	)	$	(811	)	$	218,630

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

5

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2011 and 2010

(in thousands) (unaudited)

	2011			2010
Cash flows from operating activities
Net income (loss)	$	(7,695	)	$	(38,477	)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Amortization of borrowings-related origination costs		685			223
Imputed interest on formation loan		(301	)		(424	)
Amortization of discount on formation loan		301			424
Provision/(recovery) for loan losses		(279	)		37,279
Depreciation from rental operations		1,311			999
REO-loss/(gain) on disposal		(28	)		575
REO-impairment loss/(gain)		1,652			(49	)
Change in operating assets and liabilities
Accrued interest		183			(1,314	)
Advances on loans		(1,639	)		(1,955	)
Receivable from affiliate		(313	)		(11	)
Other assets		(748	)		(1,435	)
Accounts payable		(1,239	)		179
Payable to affiliate		43			(1,225	)
Net cash provided by (used in) operating activities		(8,067	)		(5,211	)
Cash flows from investing activities
Loans originated		(85	)		(4,705	)
Principal collected on loans		12,727			20,689
Refund/(payments) for development of real estate		(219	)		(6,354	)
Cash acquired through foreclosure sales		810			—
Proceeds from disposition of real estate		29,477			5,436
Net cash provided by (used in) investing activities		42,710			15,066
Cash flows from financing activities
Payments on bank loan		(23,250	)		(29,415	)
Mortgages taken		—			19,600
Payments on mortgages		(13,272	)		(1,646	)
Partners’ withdrawals		(2,006	)		(2,946	)
Formation loan payments received		872			1,450
Increase/(decrease) in non-controlling interest		(549	)		340
Net cash provided by (used in) financing activities		(38,205	)		(12,617	)
Net increase (decrease) in cash and cash equivalents		(3,562	)		(2,762	)
Cash and cash equivalents, beginning of year		7,054			11,161
Cash and cash equivalents, end of period	$	3,492		$	8,399

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

6

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2011 and 2010

(in thousands) (unaudited)

	2011		2010
Supplemental disclosures of cash flow information
Non-cash investing activities
Real estate acquired through foreclosure/settlement on loans,
net of liabilities assumed	$	57,054	$	19,074
Cash paid for interest	$	3,561	$	3,386

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

7

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 1 – GENERAL

In the opinion of the general partners, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the consolidated financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the partnership’s Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission. The results of operations for the nine month period ended September 30, 2011 are not necessarily indicative of the operating results to be expected for the full year.

Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC, a California limited liability company formerly known as Gymno Corporation which was converted from a California corporation to a limited liability company at the close of business on September 30, 2011 (“Gymno”) and Michael R. Burwell (“Burwell”), an individual.  Prior to Gymno’s conversion to a limited liability company, The Redwood Group, Ltd., a California corporation and parent corporation owning all of the outstanding shares of RMC (“Redwood Group”), acquired all of the outstanding shares of Gymno Corporation in exchange for shares of its common stock. Redwood Group was then merged into its wholly-owned subsidiary RMC which resulted in Gymno Corporation becoming a wholly-owned subsidiary of RMC before Gymno Corporation was converted into Gymno LLC. RMC is owned and controlled directly or indirectly, by Michael R. Burwell through his individual stock ownership and as trustee of certain family trusts. The partnership was organized to engage in business as a mortgage lender for the primary purpose of making loans secured by deeds of trust on California real estate. Loans are being arranged and serviced by RMC. The general partners are solely responsible for partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. The general partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of September 30, 2011 the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code.

The partnership completed its sixth offering stage in 2008. No additional offerings are contemplated at this time. Sales commissions owed to securities broker/dealers in conjunction with the offerings, are not paid directly out of the offering proceeds by the partnership. These commissions are paid by RMC as consideration for the exclusive right to originate loans for RMI VIII. To fund the payment of these commissions, during the offering periods, the partnership lent amounts to RMC to pay all sales commissions and amounts payable in connection with unsolicited orders to invest.

On loans originated for RMI VIII, RMC may collect loan brokerage commissions (points) limited to an amount not to exceed four percent per year of the total partnership assets. The loan brokerage commissions are paid by the borrowers and thus, are not an expense of the partnership.

Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after one percent of profits and losses is allocated to the general partners. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Income taxes – federal and state – are the obligation of the limited partners, if and when taxes apply, other than for the annual California franchise taxes levied on and paid by the partnership.

Burwell, Gymno, and RMC, as the general partners, are entitled to one percent of the profits and losses of RMI VIII. Beginning with calendar year 2010, and continuing until January 1, 2020, Gymno and RMC each assigned its right to one-third of one percent of profits and losses to Burwell in exchange for Burwell assuming one hundred percent of the general partners’ equity deficit.

8

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 1 – GENERAL (continued)

Beginning with the worldwide financial crisis in 2008, continuing with the Great Recession, and on-going through 2011, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement dated October 2010 (and the preceding forbearance agreement) resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

Formation loan

RMC financed the payments to broker-dealers by borrowing funds (“the formation loan”) from RMI VIII. The formation loan is non-interest bearing and is being repaid equally over an approximate ten-year period commencing the year after the close of a partnership offering. Interest has been imputed at the market rate of interest in effect in the years the offerings closed.

If the general partners are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven.

The formation loan is deducted from limited partners’ capital in the consolidated balance sheets. As payments are received from RMC, the formation loan’s balance outstanding and the deduction from capital are reduced.

Commission and fees paid by borrowers to the general partners

Brokerage commissions, loan originations – the partnership agreement provides for RMC to collect a loan brokerage commission for fees in connection with the review, selection, evaluation, negotiation and extension of loans, that is expected to range from approximately 2% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed four percent of the total company assets per year. The loan brokerage commissions are paid by the borrowers and are not an expense of the partnership.

Other fees – the partnership agreement provides for RMC or Gymno to receive fees for processing, notary, document preparation, credit investigation, reconveyance, and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the partnership.

Syndication costs

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged against partners’ capital and are allocated to individual partners consistent with the partnership agreement.

Withdrawals

In March 2009, in response to economic conditions, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations, and is not accepting new liquidation requests until further notice.

9

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Term of the partnership

The partnership is scheduled to terminate in 2032, unless sooner terminated as provided in the partnership agreement.

Basis of presentation

The partnership’s consolidated financial statements include the accounts of its 100%-owned subsidiaries, Altura, LLC, Appian Property Company, LLC, Borrette Property Company, LLC, Broadway Property Company LLC, Diablo Villa Property Company, LLC, Diamond Heights Winery, LLC, The Element, LLC, Elk Grove Property Company, LLC, Fremont Investment Property Company, LLC, Grand Villa Glendale, LLC, Howard Street Property Investors LLC, Lincoln Village LLC, Lombard Property Company, LLC, Pine Acres LLC, Richmond Eddy Property Management, LLC, Second Street Midtown Property Company, LLC, SF Dore LLC, SF Stagehouse Property Company, LLC, Winchester Property Company LLC, and the partnership’s 72.5%-owned subsidiary, Larkin Property Company, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

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

Management estimates

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

Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low levels of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

10

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Management estimates (continued)

Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed, or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition). Further complicating this process already subject to judgment, uncertainty and imprecision are the current low transaction volumes in the residential, commercial and land markets, and the variability that has resulted. This exacerbates the imprecision in the process, and requires additional considerations and inquiries as to whether the transaction was entered into by a willing seller in a functioning market or the transaction was completed in a distressed market, in which the predominant number of sellers are surrendering properties to lenders in partial settlement of debt (as is currently prevalent in the residential markets and is occurring more frequently in commercial markets) and/or participating in “arranged sales” to achieve partial settlement of debts and claims and to generate tax advantage. Either way, the present market is at historically low transaction volumes with neither potential buyers nor sellers willing to transact. In certain asset classes the time elapsed between transactions – other than foreclosures – was 12 or more months.

The uncertainty in the process is exacerbated by the tendency in distressed market for lesser-quality properties to transact while upper echelon properties remain off the market – or come on and off the market – because these owners often believe in the intrinsic value of their properties (and the recoverability of that value) and are unwilling to accept non-economic offers from opportunistic – often all cash – acquirers taking advantage of distressed markets. This accounts for the ever lower transaction volumes for higher quality properties which exacerbate the perception of a broadly declining market in which each succeeding transaction establishes a new low.

Management has the requisite familiarity with the markets the partnership lends in generally and of the collateral properties specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value, and the history and details of specific properties - on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types (such as land held for development and for units in a condominium conversion). Multiple inputs from different sources often collectively provide the best evidence of fair value. In these cases expected cash flows would be considered alongside other relevant information.  Management’s analysis of these secondary sources, as well as the analysis of comparable sales, assists management in preparing its estimates regarding valuations, such as collateral fair value. However, such estimates are inherently imprecise and actual results could differ significantly from such estimates.

Cash and cash equivalents

The partnership considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. Periodically, partnership cash balances in banks exceed federally insured limits.

11

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Loans, advances and interest income

Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the partnership’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums, and attorney fees. Advances generally are stated at the principal balance and accrue interest until repaid by the borrower.

The partnership may fund a specific loan origination net of an interest reserve to insure timely interest payments at the inception (one to two years) of the loan. As monthly interest payments become due, the partnership funds the payments into the affiliated trust account.

If based upon current information and events, it is probable the partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, then a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees and then to reduce first the accrued interest, then advances, and then unpaid principal.

From time to time, the partnership negotiates and enters into loan modifications with borrowers whose loans are delinquent.  If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the partnership’s operations, loans that mature are renewed and/or the maturity is extended. If at the time of renewal the loan is not designated as impaired and the renewal is at terms reflecting then current market rates and conditions, the loan is not designated impaired.

Interest is accrued daily based on the unpaid principal balance of the loans. An impaired loan continues to accrue as long as the loan is in the process of collection and is considered to be well-secured. Loans are placed on non-accrual status at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement.

Allowance for loan losses

Loans and the related accrued interest and advances are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. For impaired loans, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral values, such that the net carrying amount (unpaid principal balance, plus advances, plus accrued interest less the specific allowance) is reduced to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans, which would include costs to sell in arriving at net realizable value if planned disposition of the asset securing a loan is by way of sale.

The fair value estimates are derived from information available in the real estate markets including similar property, and may require the experience and judgment of third parties such as commercial real estate appraisers and brokers.

The partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

12

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for loan losses (continued)

Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. Based on its knowledge of the borrowers and their historical (and expected) performance, and the exposure to loss as indicated in the analysis, management estimates an appropriate reserve by property type for probable credit losses in the portfolio. Because the partnership is an asset-based lender and because specific regions, neighborhoods and even properties within the same neighborhoods, vary significantly as to real estate values and transaction activity, general market trends, which may be indicative of a change in the risk of a loss, are secondary to the condition of the property, the property type and the neighborhood/region in which the property is located, and do not enter substantially into the determination of the amount of the non-specific (i.e. general) reserves.

Real estate owned (REO), held for sale

REO, held for sale includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is being marketed for sale. REO, held for sale is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. Any excess of the recorded investment in the loan over the net realizable value is charged against the allowance for loan losses. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO, held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged to operating expenses. Any recovery in the fair value subsequent to such a write down is recorded – not to exceed the net realizable value at acquisition – as an offset to operating expenses. Gains or losses on sale of the property are recorded in other income or expense. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.

Real estate owned (REO), held as investment, net

REO, held as investment, net includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is not being marketed for sale and is either being operated, such as rental properties; is being managed through the development process, including obtaining appropriate and necessary entitlements, permits and construction; or are idle properties awaiting more favorable market conditions. REO, held as investment, net is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, net, plus any cash flows during the expected holding period. After acquisition, costs incurred relating to the development and improvement of the property are capitalized, whereas costs relating to operating or holding the property are expensed. Subsequent to acquisition, management periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

13

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently issued accounting pronouncements

The FASB has issued ASU 2011-02 (April 2011), “A Creditor’s Determination of Whether Restructuring is a Troubled Debt Restructuring,” providing guidance to lenders for evaluating where a modification or restructuring of a loan as a Troubled Debt Restructuring (TDR). ASU 2011-02 provides expanded guidance on whether:  1) the lender has granted a “concession” and 2) whether the borrower is experiencing “financial difficulties.” The ASU is effective for the first interim or annual period beginning after June 15, 2011 (i.e. the third quarter of 2011) and is required to be applied retroactively for all modifications and restructuring activities in 2011. The partnership adopted ASU 2011-02 effective January 1, 2011.

The FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRs”. The ASU is effective for interim and annual periods beginning after December 15, 2011 with prospective application. The partnership is evaluating the effect of the ASU.

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES

The general partners are entitled to one percent of the profits and losses, which amounted to approximately $(31,000) and $(254,000) for the three months ended and $(77,000) and $(385,000) for the nine months ended September 30, 2011 and 2010, respectively.

Formation loan

Formation loan transactions are presented in the following table at September 30, 2011 ($ in thousands).

Formation loan made	$	22,567
Unamortized discount on formation loan		(1,458	)
Formation loan made, net		21,109
Repayments to date		(13,424	)
Early withdrawal penalties applied		(643	)
Formation loan, net		7,042
Unamortized discount on formation loan		1,458
Balance, September 30, 2011	$	8,500

An estimated amount of imputed interest is recorded for any outstanding offerings. During the three months ended September 30, 2011 and 2010, $97,000, and $135,000, respectively, was recorded related to imputed interest, and for the nine months ended September 30, 2011 and 2010, $301,000, and $424,000, respectively, was recorded.

The following commissions and/or fees are paid by the borrowers to the general partners and their affiliates and are not an expense of the partnership.

Brokerage commissions, loan originations

There were no loan brokerage commissions paid by the borrowers in the three and nine months ended September 30, 2011 and 2010.

14

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES (continued)

Other fees

Other fees totaled $1,155 and $1,064 for the three month periods ended September 30, 2011 and 2010, respectively, and $2,360 and $5,374 for the nine month periods ended September 30, 2011 and 2010, respectively.

The following fees are paid by the partnership to RMC.

Mortgage servicing fees

RMC may earn mortgage servicing fees of up to 1.5% annually of the unpaid principal of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located from RMI VIII. Historically, RMC charged one percent annually, and at times waived additional amounts to improve the partnership’s earnings. Such fee waivers were not made for the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor were such waivers made in order to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Mortgage servicing fees are summarized in the following table for the three and nine months ended September 30 ($ in thousands).

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Chargeable by RMC	$	1,648		$	560		$	3,557		$	1,952
Waived by RMC		(550	)		(187	)		(1,186	)		(693	)
Charged to RMI VIII	$	1,098		$	373		$	2,371		$	1,259

Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1% annually). At times, the general partners have charged less than the maximum allowable rate to enhance the partnership’s earnings. Such fee waivers were not made with the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the exact amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Asset management fees for the three months ended September 30, 2011 and 2010 were $225,000 and $301,000, respectively, and for the nine months ended September 30, 2011 and 2010, were $712,000 and $911,000, respectively. No asset management fees were waived during any period reported.

15

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES (continued)

Costs from RMC

RMC is reimbursed by the partnership for operating expenses incurred on behalf of the partnership, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners, and out-of-pocket general and administration expenses. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. Operating expenses were $305,000 and $111,000, for the three months ended September 30, 2011 and 2010, respectively, and $871,000 and $335,000, for the nine months ended September 30, 2011 and 2010, respectively. To the extent some operating expenses incurred on behalf of RMI VIII were not charged by RMC, the financial position and results of operations for the partnership would be different.

NOTE 4 – LOANS

The partnership generally funds loans with a fixed interest rate and a five-year term. As of September 30, 2011, approximately 67% of the partnership’s loans (representing 74% of the aggregate principal balance of the partnership’s loan portfolio) have a five year term or less from loan inception. The remaining loans have terms longer than five years. As of September 30, 2011, approximately 33% of the loans outstanding (representing 79% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity. The remaining loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

Secured loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
Principal, January 1	$	202,134		$	268,445
New loans added		85			1,055
Purchased loans, net		—			3,650
Borrower repayments		(12,569	)		(20,689	)
Foreclosures		(92,420	)		(17,431	)
Principal, September 30	$	97,230		$	235,030

16

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Loan characteristics

Secured loans had the characteristics presented in the following table ($ in thousands).

	September 30,			December 31,
	2011			2010
Number of secured loans		54			79
Secured loans – principal	$	97,230		$	202,134
Secured loans – interest rates range (fixed)		4.75-12.00	%		2.75-12.00	%
Average secured loan – principal	$	1,801		$	2,559
Average principal as percent of total principal		1.85	%		1.27	%
Average principal as percent of partners’ capital		0.82	%		1.12	%
Average principal as percent of total assets		0.60	%		0.79	%
Largest secured loan – principal	$	16,645		$	37,923
Largest principal as percent of total principal		17.12	%		18.76	%
Largest principal as percent of partners’ capital		7.61	%		16.67	%
Largest principal as percent of total assets		5.50	%		11.78	%
Smallest secured loan – principal	$	79		$	79
Smallest principal as percent of total principal		0.08	%		0.04	%
Smallest principal as percent of partners’ capital		0.04	%		0.03	%
Smallest principal as percent of total assets		0.03	%		0.02	%
Number of counties where security is located (all California)		23			27
Largest percentage of principal in one county		33.31	%		28.80	%
Number of secured loans in foreclosure status (1)		10			13
Secured loans in foreclosure – principal (1)	$	40,016		$	55,146
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

(1)  During October 2011, the partnership received $2,557,000 from the sale of a building securing a loan in foreclosure.

As of September 30, 2011, the partnership’s largest loan, in the unpaid principal balance of $16,645,000 (representing 17.12% of outstanding secured loans and 5.50% of partnership assets) has an interest rate of 10.00% and is secured by a condominium/apartment complex located in San Francisco County, California. This loan matured February 1, 2011. The partnership has been working with the borrower to assist with the sale of the remaining units.

Larger loans sometimes increase above 10% of the secured loan portfolio or partnership assets as these amounts decrease due to limited partner withdrawals, loan payoffs and restructuring of existing loans.

17

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Distribution of loans within California

Secured loans are distributed within California as summarized in the following table ($ in thousands).

	September 30, 2011					December 31, 2010
	Loans	Principal		Percent		Loans	Principal		Percent
San Francisco	7	$	32,383	33	%	11	$	58,233	29	%
San Francisco Bay Area (1)	24		50,498	52		33		77,555	38
Northern California (1)	9		7,454	8		16		55,567	28
Southern California	14		6,895	7		19		10,779	5
Total secured loans	54	$	97,230	100	%	79	$	202,134	100	%

(1)   Excludes line(s) above

Loans disbursements/construction loans

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents and would be funded from available cash balances and future cash receipts. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded. As of September 30, 2011, there was one such loan; however, the borrower is in default negating any funding obligation.

The status of the partnership’s loans, which are periodically disbursed as of September 30, 2011, is set forth below ($ in thousands).

	Complete Construction			Rehabilitation
Disbursed funds		$	—		$	16,645
Undisbursed funds		$	—		$	355

Construction loans are determined by the management to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. For each such construction loan, the partnership has approved a maximum balance for such loan; however, disbursements are made in phases throughout the construction process. As of September 30, 2011, the partnership had no commitments for construction loans. Upon project completion construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio.

The partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties and which, in the determination of management, are not construction loans. Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums. The refurbished units will then be sold to new owners, repaying the partnership’s loan. These loans are referred to by management as “Rehabilitation Loans”. As of September 30, 2011 the partnership had $17,000,000 in Rehabilitation Loans, however, the borrower is in default negating any funding obligation. While the partnership does not classify Rehabilitation Loans as Construction Loans, Rehabilitation Loans carry some of the same risks as Construction Loans. There is no limit on the amount of Rehabilitation Loans the partnership may make.

18

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Lien positions

Secured loans had the lien positions presented in the following table ($ in thousands).

	September 30, 2011						December 31, 2010
	Loans	Principal			Percent		Loans	Principal			Percent
First trust deeds	23	$	31,644		32	%	37	$	85,535		43	%
Second trust deeds	29		65,082		67		40		116,091		57
Third trust deeds	2		504		1		2		508		—
Total secured loans	54		97,230		100	%	79		202,134		100	%
Liens due other lenders at loan closing			174,526						232,081
Total debt		$	271,756					$	434,215
Appraised property value at loan closing		$	461,647					$	688,494
Percent of total debt to appraised
values (LTV) at loan closing (2)			58.87	%					63.07	%

(2)   Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last three years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

Property type

Secured loans summarized by property type of the collateral are presented in the following table ($ in thousands).

	September 30, 2011					December 31, 2010
	Loans	Principal		Percent		Loans	Principal		Percent
Single family	43	$	75,487	77	%	63	$	155,241	77	%
Multi-family	3		4,611	5		5		8,135	4
Commercial	7		16,587	17		10		38,212	19
Land	1		545	1		1		546	—
Total secured loans	54	$	97,230	100	%	79	$	202,134	100	%

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks. Recovery of the condominium sector of the real estate market is generally expected to lag behind that of single-family residences. In addition, availability of financing for condominium properties has been, and will likely continue to be, constricted and more difficult to obtain than other property types. As of September 30, 2011 and December 31, 2010, $63,523,000 and $135,948,000, respectively, of the partnership’s loans were secured by condominium properties.

19

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Property type (continued)

Condominiums may create unique risks for the partnership that are not present for loans made on other types of properties. In the case of condominiums, a board of managers generally has discretion to make decisions affecting the condominium building, including regarding assessments to be paid by the unit owners, insurance to be maintained on the building, and the maintenance of that building, which may have an impact on the partnership loans that are secured by such condominium property.

The partnership may have less flexibility in foreclosing on the collateral for a loan secured by condominiums upon a default by the borrower. Among other things, the partnership must consider the governing documents of the homeowners association and the state and local laws applicable to condominium units, which may require an owner to obtain a public report prior to the sale of the units.

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities	Loans	Principal		Percent
2011	3	$	4,777	4
2012	17		38,581	40
2013	11		3,167	3
2014	2		2,531	3
2015	7		1,619	2
Thereafter	4		2,175	2
Total future maturities	44		52,850	54
Matured at September 30, 2011	10		44,380	46
Total secured loans	54	$	97,230	100	%

It is the partnership’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

The partnership reports maturity data based upon the most recent contractual agreement with the borrower. The table above includes 3 loans with an aggregate principal of $1,015,000 which have had their maturity dates extended, which are not consider impaired, and 3 loans with a aggregate principal of $639,000 which are renewals.

Matured loans

The partnership may periodically negotiate various workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. The partnership is not obligated to fund additional money as of September 30, 2011.

20

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Matured loans (continued)

Secured loans past maturity are summarized in the following table ($ in thousands).

	September 30,			December 31,
	2011			2010
Secured loans past maturity
Number of loans (3) (4)		10			13
Principal	$	44,380		$	95,264
Advances		6,661			14,424
Accrued interest		2,120			8,040
Loan balance	$	53,161		$	117,728
Percent of loans		46	%		47	%

(3)   The secured loans past maturity include seven and ten loans as of September 30, 2011 and December 31, 2010, respectively, also included in the secured loans in non-accrual status.

(4)   The secured loans past maturity include eight and eleven loans as of September 30, 2011 and December 31, 2010, respectively, also included in the secured loans delinquency category.

Delinquency

Secured loans summarized by payment delinquency are presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Past due
30-89 days	$	1,839	$	8,083
90-179 days		1,286		2,511
180 or more days		74,484		156,866
Total past due		77,609		167,460
Current		19,621		34,674
Total secured loans	$	97,230	$	202,134

The partnership reports delinquency based upon the most recent contractual agreement with the borrower.

Interest income accrued on loans contractually past due 90 days or more as to principal or interest payments during the nine months ended September 30, 2011 and 2010 was $422,000 and $2,334,000, respectively. Accrued interest on loans contractually past due 90 days or more as to principal or interest payments at September 30, 2011 and December 31, 2010 was $4,826,000 and $12,078,000, respectively.

At September 30, 2011, the partnership had eight workout agreements in effect with an aggregate principal of $4,259,000. Of the eight borrowers, five, with an aggregate principal of $3,249,000, had made all required payments under the workout agreements and were included in the above table as current. Four of the eight loans, with an aggregate principal of $1,135,000 were designated impaired and were in non-accrual status.

21

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Delinquency (continued)

At December 31, 2010, the partnership had 14 workout agreements in effect with an aggregate principal of $20,444,000. Of the 14 borrowers, 11, with an aggregate principal of $19,097,000 had made all required payments under the workout agreements and the loans were included in the above table as current. The three loans which were 90 or more days past due, were not designated impaired and were accruing interest. Ten of the 14 loans, with an aggregate principal of $19,223,000 were designated impaired and 6 of the 10 impaired loans with an aggregate principal of $10,131,000 were in non-accrual status.

Loans in non-accrual status

Secured loans in nonaccrual status are summarized in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Secured loans in nonaccrual status
Number of loans		21		28
Principal	$	81,072	$	167,500
Advances		7,092		18,153
Accrued interest		4,313		11,971
Loan balance	$	92,477	$	197,624
Foregone interest	$	5,290	$	12,012

At September 30, 2011 and December 31, 2010, there were five and four loans, respectively, with loan balances of $6,145,000 and $1,327,000, respectively, that were contractually 90 or more days past due as to principal or interest and not in non-accrual status.

Impaired loans

Secured loans designated as impaired loans are summarized in the following table at and for the nine months ended September 30, 2011 and for the year ended December 31, 2010 ($ in thousands).

	September 30,		December 31,
	2011		2010
Principal	$	88,467	$	180,242
Recorded investment (5)	$	100,631	$	211,236
Impaired loans without allowance	$	46,653	$	39,354
Impaired loans with allowance	$	53,978	$	171,882
Allowance for loan losses, impaired loans	$	32,495	$	87,364

(5) Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

22

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 4 – LOANS (continued)

Impaired loans (continued)

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Average recorded investment	$	155,934	$	192,706
Interest income recognized	$	579	$	1,379
Interest income received in cash	$	228	$	1,521

Modifications and troubled debt restructurings

During the nine months ended September 30, 2011, the partnership modified six loans by extending the maturity date, lowering the interest rate, deferring some payments or reducing the monthly payment. Two of the modified loans qualified as a troubled debt restructuring under GAAP resulting in a loss of approximately $63,000.

NOTE 5 – ALLOWANCE FOR LOAN LOSSES

Allowance for loan losses activity is presented in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
Balance, January 1	$	89,200		$	23,086
Provision/(recovery) for loan losses		(279	)		37,279
Charge-offs, net
Charge-offs		(54,792	)		(1,215	)
Recoveries		—			—
Charge-offs, net		(54,792	)		(1,215	)
Balance, September 30,	$	34,129		$	59,150
Specific reserves	$	32,495		$	57,450
General reserves		1,634			1,700
Balance, September 30	$	34,129		$	59,150
Ratio of charge-offs, net during the period to average
secured loans outstanding during the period		29.88	%		0.49	%

23

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 5 – ALLOWANCE FOR LOAN LOSSES (continued)

Allowance for loan losses applicable to secured loans (by property type) and the percentage of principal (by property type) are presented in the following table ($ in thousands).

	September 30, 2011				December 31, 2010
	Amount		Percent		Amount		Percent
Allowance for loan losses
Secured loans by property type
Single family	$	32,435	77	%	$	78,802	77	%
Multi-family		60	5			1,760	4
Commercial		1,624	17			8,628	19
Land		10	1			10	—
Total for secured loans	$	34,129	100	%	$	89,200	100	%
Unsecured loans	$	—	100	%	$	—	100	%
Total allowance for loan losses	$	34,129	100	%	$	89,200	100	%

NOTE 6 – REAL ESTATE OWNED (REO), HELD FOR SALE

REO, held for sale activity and changes in the net realizable values are summarized in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
REO, held for sale, January 1	$	54,206		$	8,102
Acquisitions		16,200			9,726
Dispositions		(21,202	)		(5,449	)
Improvements/betterments/(refunds)		(13	)		9
Designated from real estate held as investment		14,019			16,380
Charge-offs		—			(245	)
Changes in net realizable values		(1,809	)		49
Depreciation		(181	)		—
REO, held for sale, September 30	$	61,220		$	28,572

REO, held for sale summarized by property type is presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Number of properties		10		10
Property type
Single family	$	6,093	$	7,099
Multi-family		23,327		32,777
Commercial		31,800		14,330
Total REO, held for sale	$	61,220	$	54,206

24

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 6 – REAL ESTATE OWNED (REO), HELD FOR SALE (continued)

The results of operations for rental properties in REO, held for sale is presented in the following table ($ in thousands).The table below reflects rental operations, net for those properties classified as REO, held for sale at September 30, 2011 and September 30, 2010.

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Rental income	$	381		$	706	$	1,773		$	932
Operating expenses
Property taxes		53			104		260			193
Management, administration and insurance		127			213		711			222
Utilities, maintenance and other		199			68		727			119
Advertising and promotions		2			—		7			1
Total operating expenses		381			385		1,705			535
Net operating income		—			321		68			397
Depreciation		48			73		181			73
Rental operations, net(1)	$	(48	)	$	248	$	(113	)	$	324

(1) Interest expense on the mortgages securing the rental property was $60,000 and $263,000 for the three month periods ended September 30, 2011 and 2010, respectively, and $782,000 and $392,000 for the nine month periods ended September 30, 2011 and 2010, respectively.

In the third quarter of 2011, the partnership acquired through foreclosure, a development site located in San Francisco County, California, currently operating as a parking lot. The property is adjacent to the proposed TransBay terminal and is zoned for a high-rise building. The recorded investment was approximately $16,200,000.

NOTE 7 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET

For REO, held as investment, the activity and changes in the impairment reserves are summarized in the following table for the nine months ended September 30 ($ in thousands).

	Net Realizable Value						Accumulated Depreciation
	2011			2010			2011			2010
Balance, January 1	$	115,411		$	102,833		$	1,807		$	507
Acquisitions		68,340			35,025			—			—
Dispositions		(8,247	)		—			(41	)		—
Improvements/betterments		232			2,342			—			—
Designated REO, held for sale		(14,019	)		(16,380	)		—			(73	)
Changes in net realizable values		157			—			—			—
Depreciation		(1,130	)		(999	)		1,130			999
Balance, September 30	$	160,744		$	122,821		$	2,896		$	1,433

25

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 7 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET (continued)

REO, held as investment, summarized by property type is presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Number of properties		20		13
Property type
Single family	$	10,272	$	9,399
Multi-family		132,995		86,813
Commercial		12,447		14,170
Land		5,030		5,029
Total REO, held as investment, net	$	160,744	$	115,411

At September 30, 2011, the partnership was holding three properties classified as Land until such time as the distressed market improves. Three single-family residences with a carrying value of $7,934,000 were under construction and/or rehabilitation. At December 31, 2010, three properties with a carrying value of $7,537,000 were under construction and/or rehabilitation.

The results of operations for rental properties in REO, held as investment are presented in the following table for the three and nine months ended September 30 ($ in thousands).The table below reflects rental operations, net for those properties classified as REO, held as investment at September 30, 2011 and September 30, 2010.

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Number of properties		14		5		14		5
Rental income	$	1,807	$	1,059	$	4,556	$	3,555
Operating expenses
Property taxes		300		170		694		576
Management, administration and insurance		467		58		980		630
Utilities, maintenance and other		185		50		392		1,148
Advertising and promotions		10		5		24		20
Total operating expenses		962		283		2,090		2,374
Net operating income		845		776		2,466		1,181
Depreciation		391		311		1,130		926
Rental operations, net(1)	$	454	$	465	$	1,336	$	255

(1) Interest expense on the mortgages securing the rental property was $288,000 and $167,000 for the three months ended September 30, 2011 and 2010, respectively, and $891,000 and $369,000 for the nine months ended September 30, 2011 and 2010, respectively.

26

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 7 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET (continued)

In the third quarter of 2011, the partnership acquired five properties through foreclosure.

-   Condominium units (4) in a 37 unit building in Alameda County, California. The recorded investment was approximately $600,000. An independent management firm has been engaged to oversee rental operations of the units.

-   Multi-family complex in Sacramento County, California (Elk Grove Property Company, LLC). The partnership acquired 257 of the 280 units. The recorded investment was approximately $41,000,000. The property was subject to a mortgage loan with a balance at acquisition of approximately $13,780,000 and an interest rate of 7.50%.

-   Condominium units (15) in a 30 unit complex, in Alameda County, California (Second Street Midtown Property Company, LLC). The recorded investment was approximately $3,150,000. An independent management firm has been engaged to oversee rental operations of the units.

-   Condominium units (29) in a 50 unit complex, in Contra Costa County, California. The recorded investment was approximately $3,190,000. An independent management firm has been engaged to oversee rental operations of the units.

-   A 38 unit multi-family complex, in San Joaquin County, California (Winchester Property Company, LLC). The recorded investment was approximately $3,213,000. An independent management firm has been engaged to oversee rental operations of the units.

In the second quarter of 2011, the partnership acquired properties at two locations through foreclosure.

-   Condominium units (3) in a 19 unit building in San Francisco County, California. The recorded investment was approximately $1,362,000. Two of the units are subject to separate mortgages with an aggregate amount owed of $830,000, each with variable interest rates at acquisition between 2.8% and 3.9%, and were assigned to real estate held for sale in the third quarter. The remaining unit, a common storage area and signage rental space, has been assigned to SF Stagehouse Property Company, LLC.

-   Condominium units (32) in an 81 unit complex, in Alameda County, California. The recorded investment was approximately $5,000,000. An independent management firm has been engaged to oversee rental operations of the units.

In the first quarter of 2011, the partnership acquired three properties through foreclosure.

-   Multi-family complex in Santa Clara County, California (The Element, LLC). The recorded investment was approximately $8,130,000. The property was subject to an interest-only mortgage loan with a balance at acquisition of approximately $6,800,000 and an interest rate of 6.25%. In June 2011, the Element, LLC was sold for $8,800,000.

-   Condominium units (9) in a 36 unit complex, in Sutter County, California (Lincoln Village LLC). The recorded investment was approximately $495,000. An independent management firm has been engaged to oversee rental operations of the units.

-   Recreation property (45.7 acres) in Amador County, California (Pine Acres LLC). The recorded investment was approximately $2,200,000. An independent management firm has been engaged to oversee rental operations of the units.

27

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 8 – BORROWINGS

Bank loan, secured

The partnership’s bank loan/line of credit matured on June 30, 2010, which maturity date was subsequently extended to October 18, 2010. As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include:  1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant.

The bank loan balance was $26,750,000 and $50,000,000, at September 30, 2011 and December 31, 2010, respectively.

The required minimum principal payments are $8,250,000 for the remainder of 2011 and $18,500,000 for 2012.

28

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 8 – BORROWINGS (continued)

Mortgages payable

Mortgages payable are summarized in the following table (mortgage balance $ in thousands).

	September 30,		December 31,
Lender	2011		2010
Chase	$	434	$	—
Interest rate 3.52%
Matures July 1, 2033
Monthly payment $2,728
GMAC		393		—
Interest rate 3.88%
Matures August 1, 2034
Monthly payment $2,055
East West Bank		13,782		—
Interest rate 7.50%
Matures February 5, 2012
Monthly payment $98,347
First National Bank of Northern California(2)		2,411		2,437
Interest rate 7.00%
Matures September 1, 2011
Monthly payment $17,043
Business Partners		7,541		7,789
Interest rate 6.53%
Matures May 1, 2015
Monthly payment (1) $78,767
NorthMarq Capital		19,131		19,436
Interest rate 2.95%
Matures July 1, 2015
Monthly payment (1) $123,901
PNC Bank		—		5,869
Interest rate 4.16%
Matures May 1, 2017
Monthly payment (1) $43,748
Wells Fargo Bank		382		392
Interest rate 3.00%
Matures October 1, 2032
Monthly payment $2,038
Wells Fargo Bank (Wachovia Mortgage)		340		347
Interest rate 5.13%
Matures September 15, 2032
Monthly payment $2,233
Total mortgages payable	$	44,414	$	36,270

(1)   Monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.

(2)   In October, 2011 the partnership refinanced the mortgage with First National Bank. The refinancing required a principal payment to reduce the balance to $2,210,000, the interest rate was reduced to 5.70%, and the maturity date changed to November 1, 2016.

29

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 9 – SYNDICATION COSTS 

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged against partners’ capital and are being allocated to individual partners consistent with the partnership agreement.

Syndication costs of $5,010,000 had been incurred by the partnership with the following distribution through September 30, 2011, ($ in thousands).

Costs incurred	$	5,010
Early withdrawal penalties applied		(190	)
Allocated to date		(4,058	)
September 30, 2011 balance	$	762

NOTE 10 – FAIR VALUE

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The partnership determines the fair values of its assets and liabilities based on the fair value hierarchy established in GAAP. The standard describes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the partnership has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the partnership’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the partnership’s own data.

The partnership does not record loans at fair value on a recurring basis.

Non-recurring basis

Assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2011 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	—	$	—
REO, held for sale	$	—	$	—	$	61,220	$	61,220
REO, held as investment, net	$	—	$	—	$	58,910	$	58,910

30

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 10 – FAIR VALUE (continued)

Non-recurring basis (continued)

Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2010 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	211,236	$	211,236
REO, held for sale	$	—	$	—	$	54,206	$	54,206
REO, held as investment, net	$	—	$	—	$	19,002	$	19,002

The following methods and assumptions were used to estimate the fair value.

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

(b)   Secured loans. The fair value of the non-impaired loans of $8,832,000 and $22,019,000 at September 30, 2011 and December 31, 2010, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. For impaired loans in which a specific allowance is established based on the fair value of the collateral, the collateral fair value is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers opinion of values, and publicly available information on in-market transactions (Level 2 inputs). Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required (Level 3 inputs).

(c)   Unsecured loans. Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.

(d)   Real estate owned (REO), net. Real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions.  However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

31

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011 (unaudited)

NOTE 10 – FAIR VALUE (continued)

(e)   Bank loan. The partnership has a bank loan, evidenced by a promissory note, in an outstanding amount of $26,750,000 at September 30, 2011. The interest rate of 1.5 points above the prime rate, or 4.75%, with a floor of 5.0% is deemed to be a market rate and the other terms and conditions are deemed to be customary for a well collateralized note with a 21-month loan term.

(f)   Mortgages payable. The partnership has mortgages payable (see Note 8 for details). The interest rates are deemed to be at market rates, and the other terms and conditions are deemed to be customary for the secured properties.

NOTE 11 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS

Legal proceedings

In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to September 30, 2011:

The partnership acquired through foreclosure, a single-family residence located in Fortuna, California, which had a recorded investment of approximately $260,000.

The partnership sold a condominium unit in San Francisco, California at its recorded investment.

32

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto, which are included in Item 1 of this Report, as well as the audited consolidated financial statements and the notes thereto, and “Management Discussion and Analysis of Financial Condition and Results of Operations” included in the partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.

Forward-Looking Statements

Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, expectations as to when the partnership’s bank loan will be repaid, additional foreclosures in 2011, expectations regarding the level of loan delinquencies, plans to develop, hold or sell certain properties, beliefs relating to the impact on the partnership from current economic conditions and trends in the financial and credit markets, expectations as to when liquidations will resume or how long reduced earnings distributions will be in effect, beliefs regarding the partnership’s ability to recover its investment in certain properties, beliefs regarding the effect of borrower foreclosures on liquidity, and the use of excess cash flow. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, the impact of competition and competitive pricing, regulatory changes and downturns in the real estate markets in which the partnership has made loans. All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Critical Accounting Policies

Management estimates

See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of critical accounting policies.

Related Parties

See Note 1 (General) and Note 3 (General Partners and Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of various partnership activities for which the general partners and related parties are compensated, and other related-party transactions, including the formation loan.

33

Results of Operations

Changes to the partnership’s operating results are presented in the following table ($ in thousands).

	Changes during the three months ended September 30, 2011 versus 2010						Changes during the nine months ended September 30, 2011 versus 2010
	Dollars			Percent			Dollars			Percent
Revenue, net
Interest income
Loans	$	(716	)	(62	)	%	$	(4,434	)	(72	)	%
Imputed interest on formation loan		(38	)	(28	)			(123	)	(29	)
Other interest income		(3	)	(60	)			(40	)	(91	)
Total interest income		(757	)	(59	)			(4,597	)	(69	)
Interest expense
Bank loan, secured		(287	)	(35	)			(737	)	(28	)
Mortgages payable		(82	)	(19	)			912		120
Amortization of discount on formation loan		(38	)	(28	)			(123	)	(29	)
Total interest expense		(407	)	(29	)			52		1
Net interest income/(expense)		(350	)	393				(4,649	)	(164	)
Late fees		(3	)	(38	)			(27	)	(75	)
Other		(30	)	(97	)			(33	)	(87	)
Total revenues, net		(383	)	766	)			(4,709	)	(162	)
Provision for loan losses		(23,994	)	(96	)			(37,558	)	(101	)
Operating expenses
Mortgage servicing fees		725		194				1,112		88
Asset management fees		(76	)	(25	)			(199	)	(22	)
Costs from Redwood Mortgage Corp.		194		175				536		160
Professional services		(141	)	(44	)			(401	)	(36	)
REO
Rental operations, net		307		(43	)			(644	)	111
Holding costs		43		28				515		106
Loss/(gain) on disposal		(96	)	(686	)			(603	)	(105	)
Impairment loss/(gain)		197		(143	)			1,701		(3,471	)
Other		136		(316	)			50		88
Total operating expenses, net		1,289		339				2,067		50
Net income (loss)	$	22,322		(88	)	%	$	30,782		(80	)	%

Please refer to the above table and the Statement of Operations in the financial statements included in Part I, Item I of this report throughout the discussion of Results of Operations.

Impact of general economic and market conditions on the partnership’s financial condition, results of operations and cash flows

As we have noted in our prior reports on Form 10-Q and Form 10-K, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and conditions of the amended and restated loan agreement (the “bank loan”) have resulted in significant changes in the lending and business operations of the partnership that are on-going.

34

Real estate sales, investment, and construction continue to be at greatly reduced levels, particularly as to single family homes. Loans from traditional sources, such as banks, are of limited availability, and when they are available the credit and regulatory environment imposes constraints such that few projects and/or borrowers meet the new, more stringent minimum requirements to qualify. Multi family properties that are stabilized and profitable can qualify for Fannie and Freddie loans, but the loan underwriting is severely restricting. The secondary market for mortgages on commercial real estate continues at low volumes of activity and is not a source of liquidity to the industry. The result is that our borrowers are experiencing on-going difficulty in refinancing their loans from the partnership and/or selling the properties securing those loans to generate the cash to repay us.

The cash proceeds received by the partnership from loan payments, loan payoffs, sale of real estate owned (REO), and third-party mortgages obtained on stabilized properties that the partnership has taken back through foreclosure or otherwise obtained are used predominately to pay down the amount outstanding on the bank loan. The amount outstanding on the bank loan, after the October 2011 payments were made, was $24,000,000, a reduction of $26,000,000 since December 31, 2010, and a reduction of $61,000,000 since September 2009.

Since the inception of the financial crisis (2008) and the resultant Great Recession (2009), the partnership’s portfolio has continued to migrate from predominately performing loans to impaired loans and REO. Total assets, the sum of all assets owned by the partnership, decreased from $424,873,000 at December 31, 2008, to $302,378,000 at September 30, 2011 (a decline of $122,495,000 or 29%). Net loans, the total of loan principal, advances, accrued interest, net of the allowance for loan losses, declined over the same time period from $386,589,000 to $75,486,000 (a decline of $311,103,000 or 80%). REO increased from $25,693,000 at December 31, 2008, to $221,964,000 at September 30, 2011, as a consequence of the loan collection efforts undertaken by the general partners. Our ownership of the collateral which secured our loans is the most effective means of maintaining or improving the value of the properties and is the best alternative for preserving partners’ capital.

The continuing primary focus of the general partners is the preservation of the limited partners’ capital while dealing with the historic declines in liquidity in the markets and the constraints imposed by the amended terms of the bank loan. While the financial markets continue in turmoil in November 2011, the general partners believe progress toward the repayment of the bank loan in full is on-schedule and, depending on the anticipated completion of transactions in contract and the sale of REO, likely will occur at maturity on June 30, 2012, or before.

Comparison of the three and six month periods ended September 30, 2011 versus the same periods ended September 30, 2010

Revenue – Interest income - Loans

The interest income on loans decreased for the three and nine month periods ended September 30, 2011 compared to the same periods in 2010, due to a decreases in the average secured loan portfolio balance, and the related average yield rate

The table below recaps the quarterly averages and the effect of the foregone interest on the average yield rate ($ in thousands).

	Three months ended September 30,						Nine months ended September 30,
	Average		Stated				Average		Stated
	Secured		Average		Effective		Secured		Average		Effective
	Loan		Yield		Yield		Loan		Yield		Yield
	Balance		Rate		Rate		Balance		Rate		Rate
2010	$	242,062	8.70	%	1.90	%	$	248,911	8.77	%	3.30	%
2011	$	157,329	8.44	%	1.11	%	$	183,393	8.45	%	1.26	%

35

Interest Expense – Bank Loan, secured, and other Borrowings

The decreased interest expense related to the partnership’s bank loan (previously line of credit) for the three and nine month periods ended September 30, 2011 compared to the same periods in 2010, is related primarily to a decrease in the average daily borrowing, which was $31,891,000 and $39,450,000 for the three and nine month periods ended September 30, 2011, respectively, as compared to $53,223,000 and $66,094,000 for the same periods in 2010, respectively.

The decreased interest expense on mortgages for the three month period ended September 30, 2011 compared to the same period in 2010 is primarily due to the decrease in the average daily outstanding mortgage balances from $40,888,000 for the three months ended September 30, 2010 to $37,624,000 for the three months ended September 30, 2011. The increased interest expense on mortgages for the nine month period ended September 30, 2011 compared to the same period in 2010 is primarily due to the increase in the average daily outstanding mortgage balances from $21,236,000 for the nine months ended September 30, 2011 to $40,342,000 for the nine months ended September 30, 2011. Included in the average daily balances for the nine month periods ended September 30, 2011, was the mortgage of $6,804,000, related to the Element LLC, which was acquired in February 2011, and sold in June 2011. Also, the sale of SF Dore, LLC in May 2011, and the pay off of the related mortgage, resulted in an acceleration of the amortization of debt origination fees of approximately $230,000.

Provision for losses on loans/allowance for loan losses

The provision for losses on loans is primarily driven by the specific reserves maintained in the allowance for loan losses, associated with impaired loans as analyzed each quarter. The substantial provision in the three month period ended September 30, 2010 was due to loans that were or became collateral dependent, went to non-accrual status, and/or were being considered for foreclosure due to borrower nonperformance.

See Notes 4 (Loans) and 5 (Allowance for Loan Losses) to the financial statements included in Part I, Item 1 of this report for detailed presentations of loan balances, activity, and characteristics, and the corresponding data regarding the allowance for loan losses.

Operating Expenses

The increases in mortgage servicing fees for the three and nine month periods ended September 30, 2011, compared to the same periods in 2010 were due to amounts recorded in 2011 for servicing fees not accrued on impaired loans in prior periods. In prior periods, servicing fees on impaired loans were recognized when paid, either at the time the loan was paid or a foreclosure sale was completed.

The increase in costs from RMC for the three and nine month periods ended September 30, 2011, compared to the same periods in 2010 were due to reimbursement of qualifying charges permitted in the partnership agreement. In 2010, RMC did not request reimbursement for all costs qualifying for reimbursement, which it may do from time to time in its sole discretion.

The decrease in professional services for the three month period ended September 30, 2011, compared to the same period in 2010 was primarily due to a reduced need for consultants related to the secured loan and SEC matters of $136,000. The decrease in professional services for the nine month period ended September 30, 2011, compared to the same period in 2010 was primarily due to a reduced need for accounting services, audits and tax return processing of $291,000.

The increase in rental operations for the three and nine month periods ended September 30, 2011 compared to the same periods in 2010 is attributable to the partnership’s acquisition, since September 30, 2010, of twelve additional properties, which the general partners determined, at the time of acquisition, would best serve the partnership at such time to be rented rather than sold (one was sold in February 2011, and another in April 2011, as the market for these properties had improved). The properties range from a single condominium unit up to a 257 unit condominium complex, along with a detached single-family residence and commercial property. Independent, professional management firms were engaged to oversee operations at each of the larger or complex properties.

36

Operating expenses of rental operations and depreciation of rental properties are presented in the following table for the three and nine months ended September 30 ($ in thousands).

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Rental income	$	2,188	$	1,765	$	6,329	$	4,487
Operating expenses
Property taxes		353		274		954		769
Management, administration and insurance		594		271		1,691		852
Utilities, maintenance and other		384		118		1,119		1,267
Advertising and promotions		12		5		31		21
Total operating expenses		1,343		668		3,795		2,909
Earnings/(loss) before depreciation		845		1,097		2,534		1,578
Depreciation		439		384		1,311		999
Rental operations, net(1)	$	406	$	713	$	1,223	$	579

(1) Interest expense on the mortgages securing the rental property was $348,000 and $1,673,000 for the three and nine month periods ended September 30, 2011, respectively.

The increases in real estate owned holding costs for the three month period ended September 30, 2011, compared to the same period in 2010, is primarily due to the increases in the number of REO properties.

The decrease in loss on disposal of real estate for the three month period ended September 30, 2011, compared to the same period in 2010, is primarily due to the gain on sale of a single-family residence of approximately $67,000.The decrease in loss on disposal of real estate for the nine month period ended September 30, 2011, compared to the same period in 2010 is primarily due to the loss in 2010 of $340,000 realized upon the sale of property held by Russian, LLC, as well as losses from the completed sale of two condominium units.

Liquidity and Capital Resources

Historically, the partnership relies upon loan payoffs, borrowers’ mortgage payments, rents, and sale of real estate owned for the source of funds for new loans, partnership operations, and partner distributions and liquidations.

Beginning with the worldwide financial crisis in 2008, and on-going into 2011, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement (and the preceding forbearance agreement) resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include:  1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant. The bank loan balance at September 30, 2011 and December 31, 2010 was $26,750,000 and $50,000,000, respectively. The loan is scheduled to be paid off in June 2012.

37

Cash received from loan payments, loan payoffs, the sale of real estate owned and third-party mortgages obtained on stabilized properties that we own and are included in REO is predominantly used to pay down the amount outstanding on the bank loan, to make the periodic interest and principal payments on the loan, to protect the security interest in the collateral securing the loans from senior debt and claims, to maintain and develop REO, to meet the operating expenses of the partnership, and to fund periodic payments to limited partners that elected monthly, quarterly and annual distributions.

In the event the downturn in the real estate markets continues or worsens, the disruption in the credit markets is prolonged, or liquidity in the partnership is otherwise further restricted, liquidations will continue to be suspended. For the foreseeable future, the partnership intends to utilize available cash flows to protect its security interests in properties, maintain its real estate holdings, pay down amounts due under its bank loan and on mortgages payable, and maintain operations. It is anticipated liquidation payments will resume only when the partnership’s bank loan is paid in full and cash flows improve to levels that enable the partnership to accomplish these objectives.

Contractual Obligations, Commitments, and Contingencies

Contractual obligations of the partnership are summarized in the following table as of September 30, 2011 ($ in thousands).

Contractual Obligation							More than
(principal only)	Total		Less than 1 Year		1-3 Years		3 Years
Bank loan, secured	$	26,750	$	26,750	$	—	$	—
Mortgages payable		44,414		17,022		1,776		25,616
Construction contracts		200		200		—		—
Total	$	71,364	$	43,972	$	1,776	$	25,616

See Note 4 (Loans) and Note 11 (Commitments and contingencies, other than loan commitments) to the financial statements included in Part I, Item I of this report for a detailed presentation of commitments and contingencies.

Distributions to limited partners

At the time of their subscription to the partnership, limited partners elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound earnings in their capital account. If an investor initially elects to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elects to compound earnings in his/her capital account, in lieu of cash distributions, the investor may, after three (3) years, change the election and receive monthly, quarterly or annual cash distributions. Earnings allocable to limited partners, who elect to compound earnings in their capital account, will be retained by the partnership for making further loans or for other proper partnership purposes and such amounts will be added to such limited partners’ capital accounts. The percent of limited partners electing distribution of allocated net income, if any, by weighted average to total partners’ capital was 53% and 49% at September 30, 2011 and 2010, respectively. Should the amount distributed to limited partners based on estimated net income exceed the full year results of operations, the excess amount distributed would be a return of capital.

Under the terms of the amended and restated loan agreement dated October 2010, distributions to electing limited partners cannot exceed a distribution rate of 2.1%. Accordingly, the partnership is restricted in its ability to increase distributions to the limited partners until the bank loan is repaid in full, which the partnership currently anticipates will occur on or about the scheduled maturity date of June 30, 2012. However, if borrowers continue to default on their loan obligations, if the partnership’s needs for cash increase substantially, or if income flows into the partnership decrease, then the partnership may be unable to service its scheduled debt payments during the loan term or may be unable to repay the bank loan in full on the maturity date. As with the recovery of the real estate market and the economy generally, it is anticipated rebuilding earnings and cash flows will be a slow process. It is not anticipated limited partners will see a quick or large increase in the earnings or distributions within the limitations imposed by the bank loan. Rather, such increases, if any, are anticipated to grow slowly over time as the economy and the state of the partnership improves and the bank loan is repaid. For the three months ended September 30, 2011 and 2010, the partnership made cash distribution of $640,000 and $983,000, respectively. For the nine months ended September 30, 2011 and 2010, the partnership made cash distributions of $2,006,000 and $2,917,000, respectively.

38

Withdrawals of limited partners’ capital

The partnership agreement also provides for the limited partners to withdraw their capital account subject to certain limitations and penalties. In March 2009, in response to economic conditions then existing, as to the financial-market crisis, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations and is not accepting new liquidation requests until further notice.

Under the terms of the amended and restated loan agreement (dated October 2010) withdrawals of limited partners’ capital are not permitted. The bank loan is scheduled to be paid off in June 2012. Liquidation requests of approximately $2,700,000 remained unfulfilled at September 30, 2011 and liquidations for future periods are suspended until future notice.

Liquidation requests submitted to Redwood after March 16, 2009 are not deemed to be accepted, nor do they serve as placeholders for the submitting limited partner. In addition, since March 16, 2009, the partnership significantly reduced the amount of the cash distributions made to the limited partners, who had made the election to receive distributions of their pro-rata share of the net income.

Valuation of partners’ capital as units

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

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

Current Economic Conditions

The California and national economies give some indication through GDP reports of growth, although slow, giving hope that the economy is improving. Growth prospects are offset in some sectors, industries and geographies by the continuing affects of the Great Recession. Unemployment improved modestly to 9 percent nationally, 12 percent within California, and in our primary lending arena, the San Francisco Bay Area, unemployment has declined to approximately 9.5 percent. Limited credit availability remains the norm. There are significant uncertainties with sovereign debt both at home and in Europe and the stock market exhibits high volatility.

The current economic environment may continue for a prolonged period, and market participants continue to adjust to this “new” normal. Now, would be an excellent time, given limited competition, for those with money to lend and proper underwriting, to be in the market making real estate loans that for many years to come should perform at favorable terms.

Portfolio Review

See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for a detailed presentation on the secured loan portfolio.

39

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not included as the partnership is a smaller reporting company.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The partnership carried out an evaluation, under the supervision and with the participation of the general partners of the effectiveness of the design and operation of the partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures were effective.

Changes to Internal Control Over Financial Reporting

There have not been any changes in the partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the partnership’s internal control over financial reporting.

40

PART II – OTHER INFORMATION

ITEM 1.      Legal Proceedings

In the normal course of business, the partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions would typically be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

ITEM 1A.  Risk Factors

Not included as the partnership is a smaller reporting company.

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

Not Applicable.

ITEM 3.     Defaults Upon Senior Securities

Not Applicable.

ITEM 4.     (Removed and Reserved)

ITEM 5.     Other Information

                           None.

ITEM 6.     Exhibits

31.1 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS* XBRL Instance Document

101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement of Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

41

SIGNATURES

Pursuant to the requirements 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.

REDWOOD MORTGAGE INVESTORS VIII

Signature Title Date

/S/ Michael R. Burwell
Michael R. Burwell	General Partner	November 14, 2011

/S/ Michael R. Burwell
Michael R. Burwell	President of Gymno LLC, (Principal Executive Officer); Director of Gymno LLC Secretary/Treasurer of Gymno LLC (Principal Financial and Accounting Officer)	November 14, 2011

/S/ Michael R. Burwell
Michael R. Burwell	President, Secretary/Treasurer of Redwood Mortgage Corp. (Principal Financial and Accounting Officer); Director of Redwood Mortgage Corp.	November 14, 2011

42

EX-31.1

Exhibit 31.1

GENERAL PARTNER CERTIFICATION

I, Michael R. Burwell, certify that:

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

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

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

4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:

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

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, General Partner

November 14, 2011

EX-31.2

Exhibit 31.2

PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

I, Michael R. Burwell, certify that:

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

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

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

4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:

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

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, President, and

Chief Financial Officer of Gymno LLC,

General Partner

November 14, 2011

EX-31.3

Exhibit 31.3

PRESIDENT’S CERTIFICATION

I, Michael R. Burwell, certify that:

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

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

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

4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:

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

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

/s/ Michael R. Burwell

___________________________

Michael R. Burwell, President,

Redwood Mortgage Corp.,

General Partner

November 14, 2011

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

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

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

A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, General Partner

November 14, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

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

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

A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Michael R. Burwell

_____________________________

Michael R. Burwell, President, and

Chief Financial Officer of Gymno

LLC, General Partner

November 14, 2011

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Redwood Mortgage Investors VIII (the “Partnership”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:

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

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

A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors VIII and will be retained by Redwood Mortgage Investors VIII and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Michael R. Burwell

___________________________

Michael R. Burwell, President,

Redwood Mortgage Corp.,

General Partner

November 14, 2011

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Loan discount	$ 0	$ 2,881

XML

Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest income
Loans	$ 435	$ 1,151	$ 1,735	$ 6,169
Imputed interest on formation loan	97	135	301	424
Other interest income	2	5	4	44
Total interest income	534	1,291	2,040	6,637
Interest expense
Bank loan, secured	528	815	1,888	2,625
Mortgages payable	348	430	1,673	761
Amortization of discount on formation loan	97	135	301	424
Total interest expense	973	1,380	3,862	3,810
Net interest income/(expense)	(439)	(89)	(1,822)	2,827
Late fees	5	8	9	36
Other	1	31	5	38
Total revenues, net	(433)	(50)	(1,808)	2,901
Provision/(recovery) for loan losses	983	24,977	(279)	37,279
Operating Expenses
Mortgage servicing fees	1,098	373	2,371	1,259
Asset management fees	225	301	712	911
Costs from Redwood Mortgage Corp.	305	111	871	335
Professional services	179	320	701	1,102
REO
Rental operations, net	(406)	(713)	(1,223)	(579)
Holding costs	198	155	1,003	488
Loss/(gain) on disposal	(82)	14	(28)	575
Impairment loss/(gain)	59	(138)	1,652	(49)
Other	93	(43)	107	57
Total operating expenses	1,669	380	6,166	4,099
Net income (loss)	(3,085)	(25,407)	(7,695)	(38,477)
Net income (loss)
Limited partners (99%)	(3,054)	(25,153)	(7,618)	(38,092)
General partners (1%)	(31)	(254)	(77)	(385)
[ProfitLoss]	$ (3,085)	$ (25,407)	$ (7,695)	$ (38,477)
Where Income Is Reinvested [Member]
Net income (loss) per $1,000 invested by limited partners for entire period
Net income (loss) per $1,000 invested by limited partners for entire period	(13)	(73)	(30)	(112)
Where Partner Receives Income In Monthly Distributions [Member]
Net income (loss) per $1,000 invested by limited partners for entire period
Net income (loss) per $1,000 invested by limited partners for entire period	(12)	(78)	(30)	(118)

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	REDWOOD MORTGAGE INVESTORS VIII
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding	0
Amendment Flag	false
Entity Central Index Key	0000889123
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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Note 6 - Real Estate Owned (REO), Held for Sale

9 Months Ended

Sep. 30, 2011

Real Estate Owned [Text Block]

NOTE 6 – REAL ESTATE OWNED (REO), HELD FOR SALE

REO, held for sale activity and changes in the net realizable values are summarized in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
REO, held for sale, January 1,	$	54,206		$	8,102
Acquisitions		16,200			9,726
Dispositions		(21,202	)		(5,449	)
Improvements/betterments/(refunds)		(13	)		9
Designated from real estate held as investment		14,019			16,380
Charge-offs					(245	)
Changes in net realizable values		(1,809	)		49
Depreciation		(181	)		—
REO, held for sale, September 30,	$	61,220		$	28,572

REO, held for sale summarized by property type is presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Number of properties		10		10
Property type
Single family	$	6,093	$	7,099
Multi-family		23,327		32,777
Commercial		31,800		14,330
Total REO, held for sale	$	61,220	$	54,206

The results of operations for rental properties in REO, held for sale is presented in the following table ($ in thousands).The table below reflects rental operations, net for those properties classified as REO, held for sale at September 30, 2011 and September 30, 2010.

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Rental income	$	381		$	706	$	1,773		$	932
Operating expenses
Property taxes		53			104		260			193
Management, administration and insurance		127			213		711			222
Utilities, maintenance and other		199			68		727			119
Advertising and promotions		2			—		7			1
Total operating expenses		381			385		1,705			535
Net operating income		—			321		68			397
Depreciation		48			73		181			73
Rental operations, net(1)	$	(48	)	$	248	$	(113	)	$	324

(1) Interest expense on the mortgages securing the rental property was $60,000 and $263,000 for the three month periods ended September 30, 2011 and 2010, respectively, and $782,000 and $392,000 for the nine month periods ended September 30, 2011 and 2010, respectively.

In the third quarter of 2011, the partnership acquired through foreclosure, a development site located in San Francisco County, California, currently operating as a parking lot.  The property is adjacent to the proposed TransBay terminal and is zoned for a high-rise building.  The recorded investment was approximately $16,200,000.

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Note 11 - Commitments and Contingencies, Other Than Loan Commitments

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

NOTE 11 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS

Legal proceedings

In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

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Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Significant Accounting Policies [Text Block]

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The partnership’s consolidated financial statements include the accounts of its 100%-owned subsidiaries, Altura, LLC, Appian Property Company, LLC, Borrette Property Company, LLC, Broadway Property Company LLC, Diablo Villa Property Company, LLC, Diamond Heights Winery, LLC, The Element, LLC, Elk Grove Property Company, LLC, Fremont Investment Property Company, LLC, Grand Villa Glendale, LLC, Howard Street Property Investors LLC, Lincoln Village LLC, Lombard Property Company, LLC, Pine Acres LLC, Richmond Eddy Property Management, LLC, Second Street Midtown Property Company, LLC, SF Dore LLC, SF Stagehouse Property Company, LLC, Winchester Property Company LLC, and the partnership’s 72.5%-owned subsidiary, Larkin Property Company, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

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

Management estimates

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

Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low levels of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

Management estimates (continued)

Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed, or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition). Further complicating this process already subject to judgment, uncertainty and imprecision are the current low transaction volumes in the residential, commercial and land markets, and the variability that has resulted. This exacerbates the imprecision in the process, and requires additional considerations and inquiries as to whether the transaction was entered into by a willing seller in a functioning market or the transaction was completed in a distressed market, in which the predominant number of sellers are surrendering properties to lenders in partial settlement of debt (as is currently prevalent in the residential markets and is occurring more frequently in commercial markets) and/or participating in “arranged sales” to achieve partial settlement of debts and claims and to generate tax advantage. Either way, the present market is at historically low transaction volumes with neither potential buyers nor sellers willing to transact. In certain asset classes the time elapsed between transactions – other than foreclosures – was 12 or more months.

The uncertainty in the process is exacerbated by the tendency in distressed market for lesser-quality properties to transact while upper echelon properties remain off the market – or come on and off the market – because these owners often believe in the intrinsic value of their properties (and the recoverability of that value) and are unwilling to accept non-economic offers from opportunistic – often all cash – acquirers taking advantage of distressed markets. This accounts for the ever lower transaction volumes for higher quality properties which exacerbate the perception of a broadly declining market in which each succeeding transaction establishes a new low.

Management has the requisite familiarity with the markets the partnership lends in generally and of the collateral properties specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value, and the history and details of specific properties - on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types (such as land held for development and for units in a condominium conversion). Multiple inputs from different sources often collectively provide the best evidence of fair value. In these cases expected cash flows would be considered alongside other relevant information.  Management’s analysis of these secondary sources, as well as the analysis of comparable sales, assists management in preparing its estimates regarding valuations, such as collateral fair value.  However, such estimates are inherently imprecise and actual results could differ significantly from such estimates.

Cash and cash equivalents

The partnership considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. Periodically, partnership cash balances in banks exceed federally insured limits.

Loans, advances and interest income

Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the partnership’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums, and attorney fees. Advances generally are stated at the principal balance and accrue interest until repaid by the borrower.

The partnership may fund a specific loan origination net of an interest reserve to insure timely interest payments at the inception (one to two years) of the loan. As monthly interest payments become due, the partnership funds the payments into the affiliated trust account.

If based upon current information and events, it is probable the partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, then a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees and then to reduce first the accrued interest, then advances, and then unpaid principal.

From time to time, the partnership negotiates and enters into loan modifications with borrowers whose loans are delinquent.  If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the partnership’s operations, loans that mature are renewed and/or the maturity is extended.  If at the time of renewal the loan is not designated as impaired and the renewal is at terms reflecting then current market rates and conditions, the loan is not designated impaired.

Interest is accrued daily based on the unpaid principal balance of the loans. An impaired loan continues to accrue as long as the loan is in the process of collection and is considered to be well-secured. Loans are placed on non-accrual status at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement.

Allowance for loan losses

Loans and the related accrued interest and advances are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. For impaired loans, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral values, such that the net carrying amount (unpaid principal balance, plus advances, plus accrued interest less the specific allowance) is reduced to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans, which would include costs to sell in arriving at net realizable value if planned disposition of the asset securing a loan is by way of sale.

The fair value estimates are derived from information available in the real estate markets including similar property, and may require the experience and judgment of third parties such as commercial real estate appraisers and brokers.

The partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

Allowance for loan losses (continued)

Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. Based on its knowledge of the borrowers and their historical (and expected) performance, and the exposure to loss as indicated in the analysis, management estimates an appropriate reserve by property type for probable credit losses in the portfolio. Because the partnership is an asset-based lender and because specific regions, neighborhoods and even properties within the same neighborhoods, vary significantly as to real estate values and transaction activity, general market trends, which may be indicative of a change in the risk of a loss, are secondary to the condition of the property, the property type and the neighborhood/region in which the property is located, and do not enter substantially into the determination of the amount of the non-specific (i.e. general) reserves.

Real estate owned (REO), held for sale

REO, held for sale includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is being marketed for sale. REO, held for sale is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. Any excess of the recorded investment in the loan over the net realizable value is charged against the allowance for loan losses. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO, held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged to operating expenses. Any recovery in the fair value subsequent to such a write down is recorded – not to exceed the net realizable value at acquisition – as an offset to operating expenses. Gains or losses on sale of the property are recorded in other income or expense. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.

Real estate owned (REO), held as investment, net

REO, held as investment, net includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is not being marketed for sale and is either being operated, such as rental properties; is being managed through the development process, including obtaining appropriate and necessary entitlements, permits and construction; or are idle properties awaiting more favorable market conditions. REO, held as investment, net is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, net, plus any cash flows during the expected holding period. After acquisition, costs incurred relating to the development and improvement of the property are capitalized, whereas costs relating to operating or holding the property are expensed. Subsequent to acquisition, management periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

Recently issued accounting pronouncements

The FASB has issued ASU 2011-02 (April 2011), “A Creditor’s Determination of Whether Restructuring is a Troubled Debt Restructuring,” providing guidance to lenders for evaluating where a modification or restructuring of a loan as a Troubled Debt Restructuring (TDR). ASU 2011-02 provides expanded guidance on whether:  1) the lender has granted a “concession” and 2) whether the borrower is experiencing “financial difficulties.” The ASU is effective for the first interim or annual period beginning after June 15, 2011 (i.e. the third quarter of 2011) and is required to be applied retroactively for all modifications and restructuring activities in 2011. The partnership adopted ASU 2011-02 effective January 1, 2011.

The FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRs”. The ASU is effective for interim and annual periods beginning after December 15, 2011 with prospective application. The partnership is evaluating the effect of the ASU.

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Note 8 - Borrowings

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Text Block]

NOTE 8 – BORROWINGS

Bank loan, secured

The partnership’s bank loan/line of credit matured on June 30, 2010, which maturity date was subsequently extended to October 18, 2010. As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include:  1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant.

The bank loan balance was $26,750,000 and $50,000,000, at September 30, 2011 and December 31, 2010, respectively.

The required minimum principal payments are $8,250,000 for the remainder of 2011 and $18,500,000 for 2012.

Mortgages payable

Mortgages payable are summarized in the following table (mortgage balance $ in thousands).

	September 30,		December 31,
Lender	2011		2010
Chase	$	434	$	—
Interest rate 3.52%
Matures July 1, 2033
Monthly payment $2,728
GMAC		393		—
Interest rate 3.88%
Matures August 1, 2034
Monthly payment $2,055
East West Bank		13,782		—
Interest rate 7.50%
Matures February 5, 2011
Monthly payment $98,347
First National Bank of Northern California		2,411		2,437
Interest rate 7.00%
Matures September 1, 2011
Monthly payment $17,043
Business Partners		7,541		7,789
Interest rate 6.53%
Matures May 1, 2015
Monthly payment (1) $78,767
NorthMarq Capital		19,131		19,436
Interest rate 2.95%
Matures July 1, 2015
Monthly payment (1) $123,901
PNC Bank		—		5,869
Interest rate 4.16%
Matures May 1, 2017
Monthly payment (1) $43,748
Wells Fargo Bank		382		392
Interest rate 3.00%
Matures October 1, 2032
Monthly payment $2,038
Wells Fargo Bank (Wachovia Mortgage)		340		347
Interest rate 5.13%
Matures September 15, 2032
Monthly payment $2,233
Total mortgages payable	$	44,414	$	36,270

(1) monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.

(2)  In October, 2011 the partnership refinanced the mortgage with First National Bank.  The refinancing required a principal payment to reduce the balance to $2,210,000, the interest rate was reduced to 5.70%, and the maturity date changed to November 1, 2016.

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Note 9 - Syndication Costs

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 9 – SYNDICATION COSTS

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged against partners’ capital and are being allocated to individual partners consistent with the partnership agreement.

Syndication costs of $5,010,000 had been incurred by the partnership with the following distribution through September 30, 2011, ($ in thousands).

Costs incurred	$	5,010
Early withdrawal penalties applied		(190	)
Allocated to date		(4,058	)
September 30, 2011 balance	$	762

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Note 7 - Real Estate Owned (REO), Held as Investment, Net

9 Months Ended

Sep. 30, 2011

Real Estate Disclosure [Text Block]

NOTE 7 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET

For REO, held as investment, the activity and changes in the impairment reserves are summarized in the following table for the nine months ended September 30 ($ in thousands).

	Net Realizable Value						Accumulated Depreciation
	2011			2010			2011			2010
Balance, January 1,	$	115,411		$	102,833		$	1,807		$	507
Acquisitions		68,340			35,025			—			—
Dispositions		(8,247	)		—			(41	)		—
Improvements/betterments		232			2,342			—			—
Designated REO, held for sale		(14,019	)		(16,380	)		—			(73
Changes in net realizable values		157			—			—			—
Depreciation		(1,130	)		(999	)		1,130			999
Balance, September 30,	$	160,744		$	122,821		$	2,896		$	1,433

REO, held as investment, summarized by property type is presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Number of properties		20		13
Property type
Single family	$	10,272	$	9,399
Multi-family		132,995		86,813
Commercial		12,447		14,170
Land		5,030		5,029
Total REO, held as investment, net	$	160,744	$	115,411

At September 30, 2011, the partnership was holding three properties classified as Land until such time as the distressed market improves. Three single-family residences with a carrying value of $7,934,000 were under construction and/or rehabilitation.  At December 31, 2010, three properties with a carrying value of $7,537,000 were under construction and/or rehabilitation.

The results of operations for rental properties in REO, held as investment are presented in the following table for the three and nine months ended September 30 ($ in thousands).The table below reflects rental operations, net for those properties classified as REO, held as investment at September 30, 2011 and September 30, 2010.

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Number of properties		14		5		14		5
Rental income	$	1,807	$	1,059	$	4,556	$	3,555
Operating expenses
Property taxes		300		170		694		576
Management, administration and insurance		467		58		980		630
Utilities, maintenance and other		185		50		392		1,148
Advertising and promotions		10		5		24		20
Total operating expenses		962		283		2,090		2,374
Net operating income		845		776		2,466		1,181
Depreciation		391		311		1,130		926
Rental operations, net(1)	$	454	$	465	$	1,336	$	255

(1) Interest expense on the mortgages securing the rental property was $288,000 and $167,000 for the three months ended September 30, 2011 and 2010, respectively, and $891,000 and $369,000 for the nine months ended September 30, 2011 and 2010, respectively.

In the third quarter of 2011, the partnership acquired five properties through foreclosure.

-   Condominium units (4) in a 37 unit building in Alameda County, California.  The recorded investment was approximately $600,000.  An independent management firm has been engaged to oversee rental operations of the units.

-   Multi-family complex in Sacramento County, California (Elk Grove Property Company, LLC). The partnership acquired 257 of the 280 units.  The recorded investment was approximately $41,000,000. The property was subject to a mortgage loan with a balance at acquisition of approximately $13,780,000 and an interest rate of 7.50%.

-   Condominium units (15) in an 30 unit complex, in Alameda County, California (Second Street Midtown Property Company, LLC). The recorded investment was approximately $3,150,000. An independent management firm has been engaged to oversee rental operations of the units.

-   Condominium units (29) in an 50 unit complex, in Contra Costa County, California. The recorded investment was approximately $3,190,000. An independent management firm has been engaged to oversee rental operations of the units.

-   A 38 unit multi-family complex, in San Joaquin County, California (Winchester Property Company, LLC). The recorded investment was approximately $3,213,000. An independent management firm has been engaged to oversee rental operations of the units.

In the second quarter of 2011, the partnership acquired properties at two locations through foreclosure.

-   Condominium units (3) in a 19 unit building in San Francisco County, California. The recorded investment was approximately $1,362,000. Two of the units are subject to separate mortgages with an aggregate amount owed of $830,000, each with variable interest rates at acquisition between 2.8% and 3.9%, and were assigned to real estate held for sale in the third quarter.  The remaining unit, a common storage area and signage rental space, has been assigned to SF Stagehouse Property Company, LLC.

-   Condominium units (32) in an 81 unit complex, in Alameda County, California. The recorded investment was approximately $5,000,000. An independent management firm has been engaged to oversee rental operations of the units.

In the first quarter of 2011, the partnership acquired three properties through foreclosure.

-   Multi-family complex in Santa Clara County, California (The Element, LLC). The recorded investment was approximately $8,130,000. The property was subject to an interest-only mortgage loan with a balance at acquisition of approximately $6,800,000 and an interest rate of 6.25%. In June 2011, the Element, LLC was sold for $8,800,000.

-   Condominium units (9) in a 36 unit complex, in Sutter County, California (Lincoln Village LLC). The recorded investment was approximately $495,000. An independent management firm has been engaged to oversee rental operations of the units.

-   Recreation property (45.7 acres) in Amador County, California (Pine Acres LLC). The recorded investment was approximately $2,200,000. An independent management firm has been engaged to oversee rental operations of the units.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities
Net income (loss)	$ (7,695)	$ (38,477)
Adjustments to reconcile net income (loss) tonet cash provided by (used in) operating activities
Amortization of borrowings-related origination costs	685	223
Imputed interest on formation loan	(301)	(424)
Amortization of discount on formation loan	301	424
Provision/(recovery) for loan losses	(279)	37,279
Depreciation from rental operations	1,311	999
REO-loss/(gain) on disposal	(28)	575
REO-impairment loss/(gain)	1,652	(49)
Change in operating assets and liabilities
Accrued interest	183	(1,314)
Advances on loans	(1,639)	(1,955)
Receivable from affiliate	(313)	(11)
Other assets	(748)	(1,435)
Accounts payable	(1,239)	179
Payable to affiliate	43	(1,225)
Net cash provided by (used in) operating activities	(8,067)	(5,211)
Cash flows from investing activities
Loans originated	(85)	(4,705)
Principal collected on loans	12,727	20,689
Refund/(payments) for development of real estate	(219)	(6,354)
Cash acquired through foreclosure sales	810
Proceeds from disposition of real estate	29,477	5,436
Net cash provided by (used in) investing activities	42,710	15,066
Cash flows from financing activities
Payments on bank loan	(23,250)	(29,415)
Mortgages taken		19,600
Payments on mortgages	(13,272)	(1,646)
Partners’ withdrawals	(2,006)	(2,946)
Formation loan payments received	872	1,450
Increase/(decrease) in non-controlling interest	(549)	340
Net cash provided by (used in) financing activities	(38,205)	(12,617)
Net increase (decrease) in cash and cash equivalents	(3,562)	(2,762)
Cash and cash equivalents, beginning of year	7,054	11,161
Cash and cash equivalents, end of period	3,492	8,399
Supplemental disclosures of cash flow information
Real estate acquired through foreclosure/settlement on loans, net of liabilities assumed	57,054	19,074
Cash paid for interest	$ 3,561	$ 3,386

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Note 3 - General Partners and Related Parties

9 Months Ended

Sep. 30, 2011

Related Party Transactions Disclosure [Text Block]

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES

The general partners are entitled to one percent of the profits and losses, which amounted to approximately $(31,000) and $(254,000) for the three months ended and $(77,000) and $(385,000) for the nine months ended September 30, 2011 and 2010, respectively.

Formation loan

Formation loan transactions are presented in the following table at September 30, 2011 ($ in thousands).

Formation loan made	$	22,567
Unamortized discount on formation loan		(1,458	)
Formation loan made, net		21,109
Repayments to date		(13,424	)
Early withdrawal penalties applied		(643	)
Formation loan, net		7,042
Unamortized discount on formation loan		1,458
Balance, September 30, 2011	$	8,500

An estimated amount of imputed interest is recorded for any outstanding offerings.  During the three months ended September 30, 2011 and 2010, $97,000, and $135,000, respectively, was recorded related to imputed interest, and for the nine months ended September 30, 2011 and 2010, $301,000, and $424,000, respectively, was recorded.

The following commissions and/or fees are paid by the borrowers to the general partners and their affiliates and are not an expense of the partnership.

Brokerage commissions, loan originations

There were no loan brokerage commissions paid by the borrowers in the three and nine months ended September 30, 2011 and 2010.

Other fees

Other fees totaled $1,155 and $1,064 for the three month periods ended September 30, 2011 and 2010, respectively, and $2,360 and $5,374 for the nine month periods ended September 30, 2011 and 2010, respectively.

The following fees are paid by the partnership to RMC.

Mortgage servicing fees

RMC may earn mortgage servicing fees of up to 1.5% annually of the unpaid principal of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located from RMI VIII. Historically, RMC charged one percent annually, and at times waived additional amounts to improve the partnership’s earnings. Such fee waivers were not made for the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor were such waivers made in order to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Mortgage servicing fees are summarized in the following table for the three and nine months ended September 30 ($ in thousands).

	Three months ended September 30,								Nine months ended September 30,
	2011				2010				2011				2010
Chargeable by RMC		$	1,648			$	560			$	3,557			$	1,952
Waived by RMC			(550	)			(187	)			(1,186	)			(693	)
Charged to RMI VIII		$	1,098			$	373			$	2,371			$	1,259

Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1% annually). At times, the general partners have charged less than the maximum allowable rate to enhance the partnership’s earnings. Such fee waivers were not made with the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the exact amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Asset management fees for the three months ended September 30, 2011 and 2010 were $225,000 and $301,000, respectively, and for the nine months ended September 30, 2011 and 2010, were $712,000 and $911,000, respectively. No asset management fees were waived during any period reported.

Costs from RMC

RMC is reimbursed by the partnership for operating expenses incurred on behalf of the partnership, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners, and out-of-pocket general and administration expenses. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. Operating expenses were $305,000 and $111,000, for the three months ended September 30, 2011 and 2010, respectively, and $871,000 and $335,000, for the nine months ended September 30, 2011 and 2010, respectively. To the extent some operating expenses incurred on behalf of RMI VIII were not charged by RMC, the financial position and results of operations for the partnership would be different.

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Note 4 - Loans

9 Months Ended

Sep. 30, 2011

Financing Receivables [Text Block]

NOTE 4 – LOANS

The partnership generally funds loans with a fixed interest rate and a five-year term. As of September 30, 2011, approximately 67% of the partnership’s loans (representing 74% of the aggregate principal balance of the partnership’s loan portfolio) have a five year term or less from loan inception. The remaining loans have terms longer than five years. As of September 30, 2011, approximately 33% of the loans outstanding (representing 79% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity. The remaining loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

Secured loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
Principal, January 1,	$	202,134		$	268,445
New loans added		85			1,055
Purchased loans, net		—			3,650
Borrower repayments		(12,569	)		(20,689	)
Foreclosures		(92,420	)		(17,431	)
Principal, September 30,	$	97,230		$	235,030

Loan characteristics

Secured loans had the characteristics presented in the following table ($ in thousands).

	September 30,			December 31,
	2011			2010
Number of secured loans		54			79
Secured loans – principal	$	97,230		$	202,134
Secured loans – interest rates range (fixed)		4.75-12.00	%		2.75-12.00	%
Average secured loan – principal	$	1,801		$	2,559
Average principal as percent of total principal		1.85	%		1.27	%
Average principal as percent of partners’ capital		0.82	%		1.12	%
Average principal as percent of total assets		0.60	%		0.79	%
Largest secured loan – principal	$	16,645		$	37,923
Largest principal as percent of total principal		17.12	%		18.76	%
Largest principal as percent of partners’ capital		7.61	%		16.67	%
Largest principal as percent of total assets		5.50	%		11.78	%
Smallest secured loan – principal	$	79		$	79
Smallest principal as percent of total principal		0.08	%		0.04	%
Smallest principal as percent of partners’ capital		0.04	%		0.03	%
Smallest principal as percent of total assets		0.03	%		0.02	%
Number of counties where security is located (all California)		23			27
Largest percentage of principal in one county		33.31	%		28.80	%
Number of secured loans in foreclosure status (1)		10			13
Secured loans in foreclosure – principal (1)	$	40,016		$	55,146
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

(1)  During October 2011, the partnership received $2,557,000 from the sale of a building securing a loan in foreclosure.

As of September 30, 2011, the partnership’s largest loan, in the unpaid principal balance of $16,645,000 (representing 17.12% of outstanding secured loans and 5.50% of partnership assets) has an interest rate of 10.00% and is secured by a condominium/apartment complex located in San Francisco County, California. This loan matured February 1, 2011. The partnership has been working with the borrower to assist with the sale of the remaining units.

Larger loans sometimes increase above 10% of the secured loan portfolio or partnership assets as these amounts decrease due to limited partner withdrawals, loan payoffs and restructuring of existing loans.

Distribution of loans within California

Secured loans are distributed within California as summarized in the following table ($ in thousands).

	September 30, 2011							December 31, 2010
	Loans		Principal		Percent			Loans		Principal		Percent
San Francisco		7	$	32,383		33	%		11	$	58,233		29	%
San Francisco Bay Area (1)		24		50,498		52			33		77,555		38
Northern California (1)		9		7,454		8			16		55,567		28
Southern California		14		6,895		7			19		10,779		5
Total secured loans		54	$	97,230		100	%		79	$	202,134		100	%

(1)   Excludes line(s) above

Loans disbursements/construction loans

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents and would be funded from available cash balances and future cash receipts. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded. As of September 30, 2011, there was one such loan; however, the borrower is in default negating any funding obligation.

The status of the partnership’s loans, which are periodically disbursed as of September 30, 2011, is set forth below ($ in thousands).

	Complete Construction		Rehabilitation
Disbursed funds	$	—	$	16,645
Undisbursed funds	$	—	$	355

Construction loans are determined by the management to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties. For each such construction loan, the partnership has approved a maximum balance for such loan; however, disbursements are made in phases throughout the construction process. As of September 30, 2011, the partnership had no commitments for construction loans. Upon project completion construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio.

The partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties and which, in the determination of management, are not construction loans. Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums. The refurbished units will then be sold to new owners, repaying the partnership’s loan. These loans are referred to by management as “Rehabilitation Loans”. As of September 30, 2011 the partnership had $17,000,000 in Rehabilitation Loans, however, the borrower is in default negating any funding obligation. While the partnership does not classify Rehabilitation Loans as Construction Loans, Rehabilitation Loans carry some of the same risks as Construction Loans. There is no limit on the amount of Rehabilitation Loans the partnership may make.

Lien positions

Secured loans had the lien positions presented in the following table ($ in thousands).

	September 30, 2011								December 31, 2010
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		23	$	31,644			32	%		37	$	85,535			43	%
Second trust deeds		29		65,082			67			40		116,091			57
Third trust deeds		2		504			1			2		508			—
Total secured loans		54		97,230			100	%		79		202,134			100	%
Liens due other lenders at loan closing				174,526								232,081
Total debt			$	271,756							$	434,215
Appraised property value at loan closing			$	461,647							$	688,494
Percent of total debt to appraised
values (LTV) at loan closing (2)				58.87	%							63.07	%

(2)   Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last three years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

Property type

Secured loans summarized by property type of the collateral are presented in the following table ($ in thousands).

	September 30, 2011							December 31, 2010
	Loans		Principal		Percent			Loans		Principal		Percent
Single family		43	$	75,487		77	%		63	$	155,241		77	%
Multi-family		3		4,611		5			5		8,135		4
Commercial		7		16,587		17			10		38,212		19
Land		1		545		1			1		546		—
Total secured loans		54	$	97,230		100	%		79	$	202,134		100	%

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks. Recovery of the condominium sector of the real estate market is generally expected to lag behind that of single-family residences. In addition, availability of financing for condominium properties has been, and will likely continue to be, constricted and more difficult to obtain than other property types. As of September 30, 2011 and December 31, 2010, $63,523,000 and $135,948,000, respectively, of the partnership’s loans were secured by condominium properties.

Property type (continued)

Condominiums may create unique risks for the partnership that are not present for loans made on other types of properties. In the case of condominiums, a board of managers generally has discretion to make decisions affecting the condominium building, including regarding assessments to be paid by the unit owners, insurance to be maintained on the building, and the maintenance of that building, which may have an impact on the partnership loans that are secured by such condominium property.

The partnership may have less flexibility in foreclosing on the collateral for a loan secured by condominiums upon a default by the borrower. Among other things, the partnership must consider the governing documents of the homeowners association and the state and local laws applicable to condominium units, which may require an owner to obtain a public report prior to the sale of the units.

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities	Loans		Principal		Percent
2011		3	$	4,777		4
2012		17		38,581		40
2013		11		3,167		3
2014		2		2,531		3
2015		7		1,619		2
Thereafter		4		2,175		2
Total future maturities		44		52,850		54
Matured at September 30, 2011		10		44,380		46
Total secured loans		54	$	97,230		100	%

It is the partnership’s experience that loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

The partnership reports maturity data based upon the most recent contractual agreement with the borrower.  The table above includes 3 loans with an aggregate principal of $1,015,000 which have had their maturity dates extended, which are not consider impaired, and 3 loans with a aggregate principal of $639,000 which are renewals.

Matured loans

The partnership may periodically negotiate various workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. The partnership is not obligated to fund additional money as of September 30, 2011.

Matured loans (continued)

Secured loans past maturity are summarized in the following table ($ in thousands).

	September 30,			December 31,
	2011			2010
Secured loans past maturity
Number of loans (3) (4)		10			13
Principal	$	44,380		$	95,264
Advances		6,661			14,424
Accrued interest		2,120			8,040
Loan balance	$	53,161		$	117,728
Percent of loans		46	%		47	%

(3)   The secured loans past maturity include seven and ten loans as of September 30, 2011 and December 31, 2010, respectively, also included in the secured loans in non-accrual status.

(4)   The secured loans past maturity include eight and eleven loans as of September 30, 2011 and December 31, 2010, respectively, also included in the secured loans delinquency category.

Delinquency

Secured loans summarized by payment delinquency are presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Past due
30-89 days	$	1,839	$	8,083
90-179 days		1,286		2,511
180 or more days		74,484		156,866
Total past due		77,609		167,460
Current		19,621		34,674
Total secured loans	$	97,230	$	202,134

The partnership reports delinquency based upon the most recent contractual agreement with the borrower.

Interest income accrued on loans contractually past due 90 days or more as to principal or interest payments during the nine months ended September 30, 2011 and 2010 was $422,000 and $2,334,000, respectively. Accrued interest on loans contractually past due 90 days or more as to principal or interest payments at September 30, 2011 and December 31, 2010 was $4,826,000 and $12,078,000, respectively.

At September 30, 2011, the partnership had eight workout agreements in effect with an aggregate principal of $4,259,000. Of the eight borrowers, five, with an aggregate principal of $3,249,000, had made all required payments under the workout agreements and were included in the above table as current. Four of the eight loans, with an aggregate principal of $1,135,000 were designated impaired and were in non-accrual status.

Delinquency (continued)

At December 31, 2010, the partnership had 14 workout agreements in effect with an aggregate principal of $20,444,000. Of the 14 borrowers, 11, with an aggregate principal of $19,097,000 had made all required payments under the workout agreements and the loans were included in the above table as current. The three loans which were 90 or more days past due, were not designated impaired and were accruing interest. Ten of the 14 loans, with an aggregate principal of $19,223,000 were designated impaired and 6 of the 10 impaired loans with an aggregate principal of $10,131,000 were in non-accrual status.

Loans in non-accrual status

Secured loans in nonaccrual status are summarized in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Secured loans in nonaccrual status
Number of loans		21		28
Principal	$	81,072	$	167,500
Advances		7,092		18,153
Accrued interest		4,313		11,971
Loan balance	$	92,477	$	197,624
Foregone interest	$	5,290	$	12,012

At September 30, 2011 and December 31, 2010, there were five and four loans, respectively, with loan balances of $6,145,000 and $1,327,000, respectively, that were contractually 90 or more days past due as to principal or interest and not in non-accrual status.

Impaired loans

Secured loans designated as impaired loans are summarized in the following table at and for the nine months ended September 30, 2011 and for the year ended December 31, 2010 ($ in thousands).

	September 30,		December 31,
	2011		2010
Principal	$	88,467	$	180,242
Recorded investment (5)	$	100,631	$	211,236
Impaired loans without allowance	$	46,653	$	39,354
Impaired loans with allowance	$	53,978	$	171,882
Allowance for loan losses, impaired loans	$	32,495	$	87,364

(5) Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

Impaired loans (continued)

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table ($ in thousands).

	September 30,		December 31,
	2011		2010
Average recorded investment	$	155,934	$	192,706
Interest income recognized	$	579	$	1,379
Interest income received in cash	$	228	$	1,521

Modifications and troubled debt restructurings

During the nine months ended September 30, 2011, the partnership modified six loans by extending the maturity date, lowering the interest rate, deferring some payments or reducing the monthly payment. Two of the modified loans qualified as a troubled debt restructuring under GAAP resulting in a loss of approximately $63,000.

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Note 12 - Subsequent Events

9 Months Ended

Sep. 30, 2011

Subsequent Events [Text Block]

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to September 30, 2011:

The partnership acquired through foreclosure, a single-family residence located in Fortuna, California, which had a recorded investment of approximately $260,000.

The partnership sold a condominium unit in San Francisco, California at its recorded investment.

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Note 5 - Allowance for Loan Losses

9 Months Ended

Sep. 30, 2011

Allowance for Credit Losses [Text Block]

NOTE 5 – ALLOWANCE FOR LOAN LOSSES

Allowance for loan losses activity is presented in the following table ($ in thousands).

	Nine months ended September 30,
	2011			2010
Balance, January 1,	$	89,200		$	23,086
Provision/(recovery) for loan losses		(279	)		37,279
Charge-offs, net
Charge-offs		(54,792	)		(1,215	)
Recoveries		—			—
Charge-offs, net		(54,792	)		(1,215	)
Balance, September 30,	$	34,129		$	59,150
Specific reserves	$	32,495		$	57,450
General reserves		1,634			1,700
Balance, September 30	$	34,129		$	59,150
Ratio of charge-offs, net during the period to average
secured loans outstanding during the period		29.88	%		0.49	%

Allowance for loan losses applicable to secured loans (by property type) and the percentage of principal (by property type) are presented in the following table ($ in thousands).

	September 30, 2011					December 31, 2010
	Amount		Percent			Amount		Percent
Allowance for loan losses
Secured loans by property type
Single family	$	32,435		77	%	$	78,802		77	%
Multi-family		60		5			1,760		4
Commercial		1,624		17			8,628		19
Land		10		1			10		—
Total for secured loans	$	34,129		100	%	$	89,200		100	%
Unsecured loans	$	—		100	%	$	—		100	%
Total allowance for loan losses	$	34,129		100	%	$	89,200		100	%

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Consolidated Statements of Changes in Partners Capital (Unaudited) (USD $) In Thousands	Capital Account Limited Partners [Member]	Unallocated Syndication Costs Limited Partners [Member]	Formation Loan, Gross [Member]	Total Limited Partners' Capital [Member]	Capital/(Deficit) Account General Partners [Member]	Unallocated Syndication Costs General Partners [Member]	Total General Partners' Capital/(Deficit) [Member]	Total
Balance, December 31, 2010 at Dec. 31, 2010	$ 238,581	$ (1,016)	$ (9,372)	$ 228,193	$ (724)	$ (10)	$ (734)	$ 227,459
Formation loan payments received			872	872				872
Net income (loss)	(7,618)			(7,618)	(77)		(77)	(7,695)
Allocation of syndication costs	(262)	262			(2)	2
Withdrawals	(2,006)			(2,006)				(2,006)
Balance, September 30, 2011 at Sep. 30, 2011	$ 228,695	$ (754)	$ (8,500)	$ 219,441	$ (803)	$ (8)	$ (811)	$ 218,630

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Note 1 - General

9 Months Ended

Sep. 30, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 – GENERAL

In the opinion of the general partners, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the consolidated financial information included therein. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the partnership’s Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission. The results of operations for the nine month period ended September 30, 2011 are not necessarily indicative of the operating results to be expected for the full year.

Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC, a California limited liability company formerly known as Gymno Corporation which was converted from a California corporation to a limited liability company at the close of business on September 30, 2011 (“Gymno”) and Michael R. Burwell (“Burwell”), an individual.  Prior to Gymno’s conversion to a limited liability company, The Redwood Group, Ltd., a California corporation and parent corporation owning all of the outstanding shares of RMC (“Redwood Group”), acquired all of the outstanding shares of Gymno Corporation in exchange for shares of its common stock.  Redwood Group was then merged into its wholly-owned subsidiary RMC which resulted in Gymno Corporation becoming a wholly-owned subsidiary of RMC before Gymno Corporation was converted into Gymno LLC. RMC is owned and controlled directly or indirectly, by Michael R. Burwell through his individual stock ownership and as trustee of certain family trusts. The partnership was organized to engage in business as a mortgage lender for the primary purpose of making loans secured by deeds of trust on California real estate. Loans are being arranged and serviced by RMC. The general partners are solely responsible for partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. The general partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of September 30, 2011 the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code.

The partnership completed its sixth offering stage in 2008. No additional offerings are contemplated at this time. Sales commissions owed to securities broker/dealers in conjunction with the offerings, are not paid directly out of the offering proceeds by the partnership. These commissions are paid by RMC as consideration for the exclusive right to originate loans for RMI VIII. To fund the payment of these commissions, during the offering periods, the partnership lent amounts to RMC to pay all sales commissions and amounts payable in connection with unsolicited orders to invest.

On loans originated for RMI VIII, RMC may collect loan brokerage commissions (points) limited to an amount not to exceed four percent per year of the total partnership assets. The loan brokerage commissions are paid by the borrowers and thus, are not an expense of the partnership.

Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after one percent of profits and losses is allocated to the general partners. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Income taxes – federal and state – are the obligation of the limited partners, if and when taxes apply, other than for the annual California franchise taxes levied on and paid by the partnership.

Burwell, Gymno, and RMC, as the general partners, are entitled to one percent of the profits and losses of RMI VIII. Beginning with calendar year 2010, and continuing until January 1, 2020, Gymno and RMC each assigned its right to one-third of one percent of profits and losses to Burwell in exchange for Burwell assuming one hundred percent of the general partners’ equity deficit.

Beginning with the worldwide financial crisis in 2008, continuing with the Great Recession, and on-going through 2011, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement dated October 2010 (and the preceding forbearance agreement) resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

Formation loan

RMC financed the payments to broker-dealers by borrowing funds (“the formation loan”) from RMI VIII. The formation loan is non-interest bearing and is being repaid equally over an approximate ten-year period commencing the year after the close of a partnership offering. Interest has been imputed at the market rate of interest in effect in the years the offerings closed.

If the general partners are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven.

The formation loan is deducted from limited partners’ capital in the consolidated balance sheets. As payments are received from RMC, the formation loan’s balance outstanding and the deduction from capital are reduced.

Commission and fees paid by borrowers to the general partners

Brokerage commissions, loan originations – the partnership agreement provides for RMC to collect a loan brokerage commission for fees in connection with the review, selection, evaluation, negotiation and extension of loans, that is expected to range from approximately 2% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed four percent of the total company assets per year. The loan brokerage commissions are paid by the borrowers and are not an expense of the partnership.

Other fees – the partnership agreement provides for RMC or Gymno to receive fees for processing, notary, document preparation, credit investigation, reconveyance, and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the partnership.

Syndication costs

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged against partners’ capital and are allocated to individual partners consistent with the partnership agreement.

Withdrawals

In March 2009, in response to economic conditions, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations, and is not accepting new liquidation requests until further notice.

Term of the partnership

The partnership is scheduled to terminate in 2032, unless sooner terminated as provided in the partnership agreement.

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Note 10 - Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value Disclosures [Text Block]

NOTE 10 – FAIR VALUE

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The partnership determines the fair values of its assets and liabilities based on the fair value hierarchy established in GAAP. The standard describes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the partnership has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the partnership’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the partnership’s own data.

The partnership does not record loans at fair value on a recurring basis.

Non-recurring basis

Assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2011 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	—	$	—
REO, held for sale	$	—	$	—	$	61,220	$	61,220
REO, held as investment, net	$	—	$	—	$	58,910	$	58,910

Non-recurring basis (continued)

Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2010 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Item	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	—	$	—	$	211,236	$	211,236
REO, held for sale	$	—	$	—	$	54,206	$	54,206
REO, held as investment, net	$	—	$	—	$	19,002	$	19,002

The following methods and assumptions were used to estimate the fair value.

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

(b)   Secured loans. The fair value of the non-impaired loans of $8,832,000 and $22,019,000 at September 30, 2011 and December 31, 2010, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. For impaired loans in which a specific allowance is established based on the fair value of the collateral, the collateral fair value is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers opinion of values, and publicly available information on in-market transactions (Level 2 inputs). Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required (Level 3 inputs).

(c)   Unsecured loans. Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.

(d)   Real estate owned (REO), net. Real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions.  However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants - and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.

(e)   Bank loan. The partnership has a bank loan, evidenced by a promissory note, in an outstanding amount of $26,750,000 at September 30, 2011. The interest rate of 1.5 points above the prime rate, or 4.75%, with a floor of 5.0% is deemed to be a market rate and the other terms and conditions are deemed to be customary for a well collateralized note with a 21-month loan term.

(f)   Mortgages payable. The partnership has mortgages payable (see Note 8 for details). The interest rates are deemed to be at market rates, and the other terms and conditions are deemed to be customary for the secured properties.

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Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Cash and cash equivalents	$ 3,492	$ 7,054
Loans
Principal	97,230	202,134
Advances	7,140	18,190
Accrued interest	5,193	13,119
Unsecured	52	85
Allowance for loan losses	(34,129)	(89,200)
Net loans	75,486	144,328
Real estate owned (REO)
Held for sale	61,220	54,206
Held as investment, net	160,744	115,411
REO, net	221,964	169,617
Receivable from affiliate	331	18
Other assets, net	1,105	971
Total assets	302,378	321,988
Liabilities
Bank loan, secured	26,750	50,000
Mortgages payable	44,414	36,270
Accounts payable	7,440	2,609
Deferred revenue	109	109
Payable to affiliate	1,016	973
Total liabilities	79,729	89,961
Capital
Limited partners’ capital, subject to redemption, net	219,441	228,193
General partners’ capital (deficit), net	(811)	(734)
Total partners’ capital	218,630	227,459
Non-controlling interest	4,019	4,568
Total capital	222,649	232,027
Total liabilities and capital	$ 302,378	$ 321,988