Exhibit 5.1

Venable LLP
2 Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201-2978
(410) 244-7400

September 22, 2004

Redwood Trust, Inc.
Suite 300
One Belvedere Place
Mill Valley, California 94941

Ladies and Gentlemen:

     We have served as counsel to Redwood Trust, Inc., a Maryland corporation (the “Company”), in connection with certain matters of Maryland law arising out of the above-referenced Registration Statement, as amended (the “Registration Statement”), previously declared effective by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “1933 Act”), relating to the proposed public offering of securities of the Company that may be offered and sold by the Company from time to time as set forth in the prospectus dated May 13, 2004 (the “Base Prospectus”). This opinion is rendered in connection with the sale and issuance of up to 1,150,000 shares (the “Shares”) of Common Stock, $.01 par value per share (the “Common Stock”), of the Company (including up to 150,000 additional shares of Common Stock issuable pursuant to an over-allotment option), as described in a prospectus supplement dated September 21, 2004 (the “Prospectus Supplement” and, together with the Base Prospectus, the “Prospectus”).

     In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as the “Documents”):

     1. The Registration Statement;

     2. The Prospectus;

     3. The Company’s Current Report to the Commission on Form 8-K, to which this opinion is an exhibit (the “8-K”);

     4. The charter of the Company (the “Charter”), certified as of a recent date by the State Department of Assessments and Taxation of Maryland (the “SDAT”);

 

Redwood Trust, Inc.
September 22, 2004
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     5. The Bylaws of the Company;

     6. A certificate of the SDAT as to the good standing of the Company, dated as of a recent date;

     7. Resolutions adopted by the Board of Directors of the Company, or a duly authorized committee thereof, relating to the sale and issuance of the Shares (the “Resolutions”);

     8. The Underwriting Agreement, dated September 21, 2004 (the “Underwriting Agreement”), by and between the Company and the underwriters named in Schedule A thereto; and

     9. Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth below, subject to the assumptions, limitations and qualifications stated herein.

     In expressing the opinion set forth below, we have assumed the following:

     1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.

     2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.

     3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms.

     4. All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.

 

Redwood Trust, Inc.
September 22, 2004
Page 3

     5. Upon issuance of any of the Shares, the total number of shares of Common Stock issued and outstanding will not exceed the total number of shares of Common Stock that the Company is then authorized to issue under the Charter and the Shares will not be issued in violation of any restriction or limitation contained in the Charter.

     Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:

     1. The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.

     2. The issuance of the Shares has been duly authorized and, when and if issued and delivered against payment therefor in accordance with the Charter, the Registration Statement, the Resolutions and the Underwriting Agreement, the Shares will be validly issued, fully paid and non-assessable.

     The foregoing opinion is limited to the substantive laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to compliance with any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.

     The opinion expressed herein is limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.

     This opinion is being furnished to you for your submission to the Commission as an exhibit to the 8-K and incorporation by reference into the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the 8-K and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.