Raise the flop. Find out how strong he is. Chris was right. When you called $7 he put you on KQ or AK. He might have had K8 or A8 for all you know.

You didn't have enough information to determine the presence of a set. People don't give you credit for high pocket pair unless you let them know about it on the flop. You played this hand wrong.

The guy bet 7 because he was protecting a vulnerable TP or overpair.

All things considered it wasn't a terrible laydown since you screwed yourself out of information. I might have payed this off myself.