A dramatic crystalline instability is observed for very heavily N-doped 4H-SiC wafers when subjected to thermal oxidation. Initially smooth wafer surfaces become dimpled and distorted in the darker central regions corresponding to original (000-1) facets on the boules. X-ray topography reveals a dense cellular network of dislocations in the deformed regions. Schottky barriers of Pt, Ni, and Ti show barrier heights that are uniformly reduced by about 0.47 V in the dimpled regions compared to the undisturbed peripheries, independent of metal work function. Photoluminescence energies are reduced by about 0.74 eV and intensities of certain Raman peaks are modified. Based on these data, the existence of thin, predominantly cubic lamellae is suspected.