Two options: redraft or lock those teams, moving as many players as possible to reserve.
As WAB mentioned, waivers creates a huge value disparity and isn't fair. A redraft is fine as everyone starts off from scratch and locking the teams is fine as those players are just taken out of circulation (you hear people whine that, "but then I can't use so-and-so" as if they would've been traded to them anyways, but whatever). Either solution is fine.
0-3 to 4-3. Worst choke in the history of baseball. Enough said.