The following is a financial review and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2008 and 2007. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other detailed information regarding us appearing elsewhere in this report on Form 10-Q and our report on Form 10-K, Part II, Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations for the year ended December 31, 2007 and our quarterly reports filed on Form 10-Q for the periods ended March 31, 2008 and June 30, 2008.

FORWARD - LOOKING STATEMENTS

Certain statements in this report, including, without limitation, matters discussed under this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this report on Form 10-Q. We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in Part II Item 1A Risk Factors of this Quarterly Report on Form 10-Q and in our other securities filings with the Securities and Exchange Commission ("SEC"). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties. Our estimates of the value of collateral securing our loans may prove erroneous, or the value of the underlying property could decline subsequent to the date of our evaluation. As a result, such estimates are not guarantees of the future value of the collateral. The forward-looking statements contained in this report are made only as of the date hereof. We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

OVERVIEW

Our primary business objective is to generate income while preserving principal by investing in real estate loans. We believe there is a significant market opportunity to make real estate loans to owners and developers of real property whose financing needs are not met by other real estate lenders. The loan underwriting standards utilized by our manager and Vestin Originations are less strict than those used by many institutional real estate lenders. In addition, one of our competitive advantages is our ability to approve loan applications more quickly than many institutional lenders. As a result, in certain cases, we may make real estate loans that are riskier than real estate loans made by many institutional lenders such as commercial banks. However, in return, we seek a higher interest rate and our manager takes steps to mitigate the lending risks such as imposing a lower loan-to-value ratio. While we may assume more risk than many institutional real estate lenders, in return, we seek to generate higher yields from our real estate loans.

Our operating results are affected primarily by: (i) the amount of capital we have to invest in real estate loans, (ii) the level of real estate lending activity in the markets we service, (iii) our ability to identify and work with suitable borrowers, (iv) the interest rates we are able to charge on our loans and (v) the level of non-performing assets, foreclosures and related loan losses which we may experience.

Our recent operating results have been adversely affected by increases in allowances for loan losses and increases in non-performing assets. This negative trend accelerated sharply during the nine months ended September 30, 2008. As of September 30, 2008, we had 14 loans considered non-performing (i.e., based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due). These loans are currently carried on our books at a value of approximately $21.4 million, net of allowance for loan losses of approximately $9.3 million. These loans have been placed on non-accrual of interest status and are the subject of pending foreclosure proceedings. As of September 30, 2008, five loans totaling approximately $11.0 million, representing approximately 26% of our portfolio's total value, had a common guarantor, of these five loans; four loans totaling approximately $9.4 million were considered non-performing as of September 30, 2008. For additional information, see "Specific Loan Allowance" in Note D - Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this report Form 10-Q.

Non-performing assets, net of allowance for loan losses, totaled approximately $27.4 million or 56% of our total assets as of September 30, 2008, as compared to approximately $14.8 million or 24% of our total assets as of December 31, 2007. At September 30, 2008, non-performing assets consisted of approximately $6.0 million of real estate held for sale and approximately $21.4 million of non-performing loans, net of allowance for loan losses. See Note F - Real Estate Held for Sale and Note D - Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this report Form 10-Q.

We believe that the significant increase in the level of our non-performing assets is a direct result of the deterioration of the economy and credit markets. As the economy has weakened and credit has become more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted. Our exposure to the negative developments in the credit markets and general economy has likely been increased by our business strategy, which entails more lenient underwriting standards and expedited loan approval procedures. Moreover, declining real estate values in the principal markets in which we operate has in many cases eroded the current value of the security underlying our loans.

We expect that the weakness in the credit markets and the weakness in lending will continue to have an adverse impact upon our markets for the foreseeable future. This may result in a further increase in defaults on our loans and we might be required to record additional reserves based on decreases in market values or we may be required to restructure loans. This increase in loan defaults has materially harmed our operating results and led to the suspension of dividend payments to our stockholders.

As of November 10, 2008, three performing loans, totaling approximately $2.4 million, are delinquent in interest payments, our manager is currently working with the borrowers to receive full payment. However, no assurance can be given at this time that full payment will be received on these newly delinquent loans.

As of September 30, 2008, our loan-to-value ratio was 67.44%, net of allowances for loan losses, on a weighted average basis generally using appraisals prepared on an "as-if developed basis" in connection with the loan origination. Additional marked increases in loan defaults accompanied by a rapid decline in real estate values, as evidenced by updated appraisals generally prepared on an "as-is-basis," will have a material adverse effect upon our financial condition and operating results. The current loan-to-value ratio is primarily a result of declining real estate values, which have eroded the market value of our collateral.

As of September 30, 2008, we have provided a specific reserve allowance for 10 non-performing loans and 3 performing loans based on updated appraisals of the underlying collateral and our evaluation of the borrower for these loans, obtained by our manager during the year ended December 31, 2007, and the nine months ended September 30, 2008. For further information regarding allowance for loan losses, refer to Note D - Investments in Real Estate Loans in the notes to our consolidated financials statements in Part I, Item 1 Consolidated Financial Statements of this report Form 10-Q.

Our capital, subject to a 3% reserve, will constitute the bulk of the funds we have available for investment in real estate loans. We do not have any arrangements in place to materially increase the funds we will have available to invest from any other sources. See discussion under - "Capital and Liquidity."

From time to time, we may acquire or sell investments in real estate loans from/to our manager or other related parties pursuant to the terms of our Management Agreement without a premium. No gain or loss is recorded on these transactions, as it is not our intent to make a profit on the purchase or sale of such investments. The purpose is generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans. For further information regarding related party transactions, refer to Note G - Related Party Transactions in the notes to our consolidated financials statements in Part I, Item 1 Consolidated Financial Statements of this report Form 10-Q.

As of September 30, 2008, our loans were in the following states: Arizona, California, Hawaii, Nevada, Oklahoma, Oregon, Texas and Washington. The weighted average term of our outstanding loans, including extensions, was 19 months as of September 30, 2008 and December 31, 2007, respectively.

Comparison of Operating Results for the three and nine months ended September 30, 2008 to the three and nine months ended September 30, 2007.

                                          For the Three Months              For the Nine Months
                                          Ended September 30,               Ended September 30,
                                          2008            2007             2008             2007

Total revenues                        $    436,000     $ 1,020,000     $   2,798,000     $ 3,782,000
Total operating expenses                 2,561,000         893,000         6,895,000       1,659,000
Non-operating income (loss)             (2,146,000 )       145,000        (1,986,000 )       289,000
Loss from real estate held for sale     (2,155,000 )      (167,000 )      (5,679,000 )      (531,000 )

Income (loss) before provision for
income taxes                            (6,426,000 )       105,000       (11,762,000 )     1,881,000

Provision for income taxes                      --              --                --              --

Net income (loss)                     $ (6,426,000 )   $   105,000     $ (11,762,000 )   $ 1,881,000

Basic and diluted earnings per
common share                          $      (0.93 )   $      0.02     $       (1.71 )   $      0.27
Dividends declared per common share   $         --     $      0.14     $        0.16     $      0.43
Weighted average common shares           6,875,066       6,872,140         6,874,524       6,871,260
Weighted average term of
outstanding loans, including
extensions                               19 months       20 months         19 months       20 months

Comparison of Operating Results for the three months ended September 30, 2008 to the three months ended September 30, 2007.

Total Revenues: For the three months ended September 30, 2008, total revenues were approximately $0.4 million compared to approximately $1.0 million during the three months ended September 30, 2007, a decrease of approximately $0.6 million or 57% due in significant part to the following factors:

· Interest income from investments in real estate loans decreased to approximately $0.4 million during the three months ended September 30, 2008, compared to approximately $1.0 million during the same period in 2007, primarily due to the increase in non-performing loans during the three months ended September 30, 2008, compared to three months ended September 30, 2007. As of September 30, 2008, approximately $30.7 million of our loans were non-performing compared to approximately $16.2 million as of September 30, 2007. For additional information on our loan portfolio, see Note D - Investment Real Estate Loans of the Notes to the Consolidated Financial Statements of this Interim Report Form 10-Q.

Total Operating Expenses: For the three months ended September 30, 2008, total operating expenses were approximately $2.6 million compared to approximately $0.9 million during the three months ended September 30, 2007, an increase of approximately $1.7 million or 187% due in significant part to the following factors:

· Operating expenses increased primarily because of the recognition of provisions for loan losses. During the three months ended September 30, 2008, we recognized provisions for loan loss related to five non-performing loans and one performing loan totaling approximately $2.0 million. The significant increase in loan losses is primarily a result of declining values in real estate as reflected in updated appraisals obtained by our manager in 2008. We believe that the continued weakness in real estate markets may result in our recording additional losses related to the declining value of real estate securing our non-performing loans. See "Specific Loan Allowance " in Note D Investment Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q. During the three months ended September 30 2007, we recognized provision for loan loss of approximately $0.2 million. During the three months ended September 30, 2008, we, VRM II and Fund III foreclosed upon four loans and classified the collateralized properties as real estate held for sale. See "Specific Loan Allowance " in Note D Investment Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q.

· During the three months ended September 30, 2008 and 2007, we incurred professional fees of approximately $0.3 million and $0.4 million, respectively, primarily due to legal actions that have been filed against us in connection with the REIT conversion and foreclosure costs on non-performing loans. See Note M - Legal Matters Involving The Company of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q.

Total Non-Operating Income (Loss): For the three months ended September 30, 2008, total non-operating loss was approximately $2.1 million, compared to income of $145,000 during the three months ended September 30, 2007, a decrease of approximately $2.3 million or 1,580%. This decrease is mainly due to the recognition of an other than temporary impairment of our marketable securities - related party, totaling approximately $2.2 million, for the three months ended September 30, 2008.

Total Loss from Real Estate Held for Sale: For the three months ended September 30, 2008, total losses from real estate held for sale were approximately $2.2 million compared to approximately $0.1 million during the three months ended September 30, 2007, an increase of approximately $2.0 million or 1,190%. As detailed below, such losses are primarily a result of declining real estate values as reflected in updated appraisals obtained in 2008. We believe that the continued weakness in real estate markets may result in additional losses on our real estate held for sale.

· During the three months ended September 30, 2008, we, VRM II and Fund III acquired through foreclosure proceedings a 106 Unit Townhouse Project known as Cliff Shadows Townhomes located in, Las Vegas, NV, (Cliff Shadows Properties,
LLC). Our manager evaluated the carrying value of the acquired property and estimated the net realizable value of the asset totaled approximately $9.7 million of which our portion totaled $32,000. Based on this estimate, our write down on this real estate held for sale totaled $24,000 during the three months ended September 30, 2008. In October 2008, we entered into a sales contract with a third party at a price approximating the net realizable value. The sales contract requires that the buyer complete the purchase within 30 days, however, there can be no assurance that the sale will be completed.

· During the three months ended September 30, 2008, our manager evaluated the carrying value of a 25 acre parcel in Brawley, CA, (Brawley CA 122, LLC), and estimated the net realizable value of the asset totaled approximately $0.9 million of which our portion totaled approximately $0.3 million. Based on this estimate, our write down on this real estate held for sale totaled approximately $0.1 million during the three months ended September 30, 2008. In addition, our manager estimated a write down of approximately $1.7 million, of which our portion was approximately $0.6 million, related to 46.75 acres of land in Galveston, TX, based on the current sales price of $2.0 million.

· During the three months ended September 30, 2008, we, VRM II and Fund III acquired through foreclosure proceedings 132.03 acres of Land within the Wolf Creek Estates Master Planned Community, located in Mesquite, NV, (MRPE,
LLC). Our manager evaluated the carrying value of the acquired property and estimated the net realizable value of the asset totaled approximately $7.6 million of which our portion totaled approximately $1.5 million. Based on this estimate, our write down on this real estate held for sale totaled approximately $1.3 million during the three months ended September 30, 2008.

· We recorded a loss on sale of real estate held for sale of approximately $0.1 million during the three months ended September 30, 2008, on the sale of real estate located on Mt. Charleston, NV, (Forest Development, LLC). There was no loss on sale of real estate held for sale during the same period in 2007.

· During the three months ended September 30, 2007, we wrote down approximately $13,000 on property located in Cathedral City, CA, (Rio Vista Nevada, LLC). In addition, we recognized expenses related to real estate held for sale for this property, which totaled $112,000 for the three months ended September 30, 2007.

Comparison of Operating Results for the nine months ended September 30, 2008 to the nine months ended September 30, 2007

Total Revenues: For the nine months ended September 30, 2008, total revenues were approximately $2.8 million compared to approximately $3.8 million during the nine months ended September 30, 2007, a decrease of approximately $1.0 million or 26%. Revenues were primarily affected by the following factors:

· Interest income from investments in real estate loans decreased to approximately $2.4 million during the nine months ended September 30, 2008, compared to approximately $3.3 million during the same period in 2007, primarily due to the increase in non-performing loans referred to above. Our revenue is also dependent upon the balance of our investment in real estate loans and the interest earned on these loans. As of September 30, 2008, our investment in real estate loans was approximately $42.3 million compared to our investment in real estate loans, including loans related to seller financed real estate held for sale, of approximately $54.2 million as of September 30, 2007. This decline is largely attributable to the increase in non-performing assets which has reduced the amount of cash available for investment in new loans. For additional information see Note D- Investment Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q.

· During the nine months ended September 30, 2008, we earned $43,000 in other income from principal payments on notes receivable that were fully reserved, compared to $281,000 during the same period in 2008.

Total Operating Expenses: For the nine months ended September 30, 2008, total operating expenses were approximately $6.9 million compared to approximately $1.7 million during the nine months ended September 30, 2007, an increase of approximately $5.2 million or 316%. Expenses were primarily affected by the allowance for loan losses and loan restructuring charge discussed above in Total Operating Expenses for the three months ended September 30, 2008.

Total Non-Operating Income (Loss): For the nine months ended September 30, 2008, total non-operating loss was approximately $2.0 million compared to income of approximately $0.3 million during the nine months ended September 30, 2007, a decrease of approximately $2.3 million or 787%. This decrease is mainly due to the recognition of an other than temporary impairment of our marketable securities - related party, as discussed above in Total Non-Operating Income
(Loss) for the three months ended September 30, 2008.

Total Loss from Real Estate Held for Sale: For the nine months ended September 30, 2008, total losses from real estate held for sale were approximately $5.7 million compared to approximately $0.5 million during the nine months ended September 30, 2007, an increase of approximately $5.2 million or 969% due in significant part to the following factors:

· In addition to the write downs and loss on real estate held for sale discussed above in Total Loss from Real Estate Held for Sale for the three months ended September 30, 2008, we wrote down approximately $3.4 million on four properties held for sale, totaling approximately $5.1 million for the nine months ended September 30, 2008. For additional information see Note F- Real Estate Held For Sale of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q. As of September 30, 2008, we had seven properties held for sale totaling approximately $6.0 million compared to one property held for sale as of September 30, 2007 totaling approximately $3.5 million.

Dividends to Stockholders; Reliance on Non-GAAP Financial Measurements: To maintain our status as a REIT, we are required to make distributions, other than capital gain dividends, to our stockholders each year in an amount at least equal to (1) the sum of (a) 90% of our taxable income, computed without regard to the dividends paid deduction and our net capital gain, and (b) 90% of the net income, after tax, from foreclosure property, minus (2) the sum of certain specified items of noncash income over 5% of our REIT taxable income, determined without regard to the dividends paid and our net capital gain. Because we expect to make distributions based on these requirements, and not based on our earnings computed in accordance with GAAP, we expect that our distributions may at times be more or less than our reported earnings as computed in accordance with GAAP. Based on our current tax estimates, all of 2007 distributions may be a return of capital.

Total taxable income and REIT taxable income are non-GAAP financial measurements, and do not purport to be an alternative to reported net income or cash flow from operations determined in accordance with GAAP as a measure of operating performance. Our total taxable income represents the aggregate amount of taxable income generated by us and our wholly owned taxable REIT subsidiary, TRS I, Inc. REIT taxable income is calculated under U.S. federal tax laws in a manner that, in certain respects, differs from the calculation of net income pursuant to GAAP. REIT taxable income excludes the undistributed taxable income of TRS I, Inc., which is not included in REIT taxable income until distributed to us. Subject to certain TRS value limitations, there is no requirement that the TRS I, Inc. distribute their earnings to us. Since we are structured as a REIT and the Internal Revenue Code requires that we distribute substantially all of our net taxable income in the form of distributions to our stockholders, we believe that presenting investors with the information management uses to calculate our taxable income is useful to investors in understanding the amount of the minimum distributions that we must make to our stockholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies have identical calculations, this presentation of total taxable income and REIT taxable income may not be comparable to those reported by other companies.

In addition to satisfying the 90% taxable income distribution rule referred to above, the amount of distribution we make is ultimately based on distributing 100% of the REIT taxable income in order to limit any tax liability. The distribution of this additional 10% of REIT taxable income is typically made in the following tax year as IRC section 858 allows us to carryback distributions made, for example, in 2008 to 2007, for the purposes of zeroing out our 2007 REIT taxable income. As a result, included in the distributions of approximately $1.1 million declared during the nine months ended September 30, 2008 is approximately $0.2 million that was used to reduce our 2007 REIT taxable income to zero.

The table below reconciles the differences between reported net income and total estimated taxable income and estimated REIT taxable income for the nine months ended September 30, 2008:

                                                            For the Nine
                                                            Months Ended
                                                           September 30,
                                                                2008
         Net loss, as reported                             $  (11,762,000 )
         Add (deduct):
         Impairment of marketable securities - related
         party                                                  2,181,000
         Provision for loan losses                              5,644,000
         Write down on real estate held for sale                5,427,000
         Net tax loss on foreclosure of real estate
. . .